Mutual funds & Bankruptcy & When can you file for Bankruptcy
At first, bankruptcy can look scary, you may have questions such as ‘what will I lose’ and ‘what will I be able to keep?’ This is a common concern for many people. There are certain exemptions that you should know about to help alleviate your concerns. Also, you should know that when you meet with a Trustee, they will look at all available options with regards to your personal financial situation to help see what the best solution is. Bankruptcy tends to be the last resort option. Many times, a Consumer Proposal will be recommended instead.
Bankruptcy is designed to help give those honest but unfortunate debtors an ability to deal with their uncontrollable debts and help them move on with their lives.
When looking into bankruptcy we need to discuss with your trustee the exempt and non-exempt assets that you have and see how they will be affected. You may have Mutual funds, RRSPs, TFSA as a few examples of where you have money invested.
Non-exempt items/assets will generally need to be forfeited in bankruptcy. Exempt items/assets will be exempt forfeiture in a bankruptcy filing.
Mutual funds, Bankruptcy & Non Exempt Assets
So if you file for bankruptcy, what happens to your Mutual funds? Mutual funds may be rather non-exempt or exempt depending on who is administering your account. If your mutual funds are held in an account administered by a Life Insurance company and the investments are in segregated life insurance related products, your account may be exempt if you have a preferred beneficiary on your account. Preferred beneficiaries include spouse, parents, grandparents, children or grandchildren. Any other beneficiary and your account would be non-exempt. If your mutual funds are held with a bank, they will be non-exempt.
Your TFSA also falls into the non-exempt category.
Bankruptcy & Exempt Assets
RRSPs are exempt, but you would lose any money that was paid into your RRSP in the 12 months before filing your bankruptcy or proposal. So, if you had 10,000 invested into RRSPs, and over the past year you invested $1000, the $1000 would need to be paid into your estate either by you directly, or by collapsing that portion of the RRSP. The rest would be safe. Other exempt assets are your old age security, your Canada Pension Plan and your Registered Pension Plan. However, any payments received from these sources would be included as part of your income.