What Happens to RRSPs, RESPs & Pension Plans in Bankruptcy or a Consumer Proposal?

December 17, 2013

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If you’re in financial trouble and considering either a consumer proposal or bankruptcy, you may be wondering what will happen to your RRSPs/RRIFs, your pension, and/or your RESPs. When it comes to insolvency law in Canada, each of these investments is treated differently, so let’s break it down this way:

RRSPs and RRIFs in Bankruptcy

RRSPs and RRIFs (Registered Retirement Income Funds) are considered exempt assets in Canada: that is, they cannot be seized for payment to your creditors. Your trustee, however, must take back any contributions you made to an RRSP or RRIF in the 12 months before you filed for bankruptcy.

RRSPs and RRIFs in a Consumer Proposal

When you file a consumer proposal, you keep full control over your RRSPs and RRIFs.

RESPs in Bankruptcy

Many people believe that RESPs (Registered Education Savings Plans) are protected because the funds have been set aside for their children. This is not the case. While it’s true that accounts held in trust cannot be seized, an RESP is not considered a true trust account. This means RESPs are treated as assets and your insolvency trustee will seize them. However, depending on your financial circumstances, you may be able to repurchase an RESP from your trustee.

RESPs in a Consumer Proposal

While an RESP is considered to be an asset, remember that your trustee does not seize assets in a consumer proposal (as happens in a bankruptcy). This means you maintain full control over your RESPs in a proposal.

Pension Plans in a Bankruptcy

If your pension savings are invested in an RRSP or RRIF, they are exempt from seizure (see above). Most provincial laws also provide protection for pension plans outside of RRSPs in Ontario and most provinces, for example, pension plans are not seizable.  However, any pension benefits you might be receiving are considered income for purposes of determining surplus income.

Pension Plans in a Consumer Proposal

Again, because pension plans are generally considered exempt, they cannot be seized by your trustee, and you’ll remain in control of them.

To find out more about how your RRSPs, RESPs, and pension plans might be affected by your financial situation, or to discuss your options, call today for your free, no obligation consultation: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926 or book online now.

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