TFSA and Bankruptcy
This is a great question and when this question arises, it brings a comparison between TFSA and RRSPs as both are options you may consider for saving. If you happen to be declaring bankruptcy, you will need to disclose all of your assets to the trustee and these include your RRSPs, TFSAs and so on.
Tax free savings accounts have no protection in bankruptcy. Contributions made in the 12 months before filing, may not be protected with RRSPs, but the balance contributed more than 12 months before filing are protected.
With a personal bankruptcy
If you are declaring personal bankruptcy, only certain assets are allowed to be exempted (via the Ontario Execution Act) and this depends on the nature of the assets. The Ontario Execution Act provides an exemption for one vehicle to the extent of $6,600, personal effects (clothing) now has no limit, household items (furniture) to the extent of $13,150 and tools of trade to the extent of $11,300.
When the non-exempt assets have been dispersed to your creditors, and all the circumstances of the bankruptcy are met, you are then legally released from those debts owed to the unsecured creditors. Other issues can come into play such as surplus income for example.
Depending on whether it is your first, second or third time filing for bankruptcy, it can take from 9 months to 36 months to complete and will be on your credit record for 7 years once your bankruptcy has been completed.
When you meet with your Licensed Insolvency Trustee, they will review all your options, and bankruptcy may not be the best choice for you. A consumer proposal could be another option.
With a consumer proposals
With a consumer proposal, if you happen to owe $250,000 or less (mortgage not included), you may qualify for a consumer proposal. With a consumer proposal, you get to keep your assets which includes your TFSA by providing monthly payments in a proposal.
With a consumer proposal, you pay a portion of your unsecured debt over a period of 5 years or less.
Whether you have a TFSA or an RRSP, you should get all the facts with a free consultation at the offices of David Sklar & Associates. There are more options available than just Bankruptcy, and we can help you determine what the best option for you is.
Consumer Proposals with David Sklar & Associates
The unfortunate reality is that many Ontario residents have been thrown into financial instability because of the current health crisis and are now concerned about what to do next. If you need financial help, the licensed insolvency trustees at David Sklar & Associates are here for you.
We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.
Patience can be rewarding. If you wait to apply for credit after you complete your consumer proposal and rebuild your credit score, you’re going to get better options from lenders. Contact us today so we can walk you through your options.