TFSAs (tax-free savings accounts) and RRSPs in Bankruptcy are treated differently. When filing for bankruptcy, you need to divulge all your assets to the Licensed Insolvency Trustee, and this includes a TFSA. Please note that TFSAs are not protected assets. RRSPs are protected, but RRSPs contributions that have been made 12 months before filing, may not be protected.
When first looking into bankruptcy, a Trustee needs to determine if you are insolvent or not. If you are declared insolvent, then you may be eligible for a consumer proposal or bankruptcy.
With personal bankruptcy
With personal bankruptcy, you are only allowed to keep certain assets that have been exempted by the Ontario Execution Act and in a Consumer Proposal – the individual filing is able to retain all their assets (providing they continue to make all required payments – i.e. mortgage/car loan etc.).
With a consumer proposal
You may qualify for a Consumer Proposal if you owe less than $250,000 (not including the mortgage on the main home). With a consumer proposal, your get to keep your assets, which includes your tax-free savings account by providing monthly payments in a proposal. Also under a consumer proposal, the unsecured debt you owe is reduced and is paid off in five years or under. Legal action/ collection calls from unsecured creditors stop.
When meeting with a Licensed Insolvency Trustee, it is important to disclose all of your debts and assets, including your RRSPs, TFSA, and so on, as RRSPs and TFSA are treated differently.
Filing for Bankruptcy tends to be the last route after all options have been taken into consideration. Every situation is unique and meeting with a trustee at David Sklar and associates can help you determine the best option for you.