Registered Retirement Plan Exemptions with Bankruptcy
A little known fact about bankruptcy in the Toronto area (and all of Ontario) is that RRSPs are exempt from seizure. Although, contributions to your RRSPs for the 12 months before you declare bankruptcy, may be clawed back.
This means that RRSPs (Registered Retirement Saving Plans) are not included in those assets that can be taken from you and disbursed to your creditors. If you declare bankruptcy, your RRSPs (except for payments you made into your RRSPs over the previous 12 months) remain yours.
This applies to all RRSPs – ‘locked-in’ or not.
RRIFs (Registered Retirement Income Funds) are also exempt from seizure in bankruptcy. The 12 month claw back also applies to RRIFs.
Keeping Your RRSPs Safe
Too often, we have seen people who were overcome by debt, cash in their RRSPs in a desperate, futile attempt to pay off their creditors. By the time they file for bankruptcy, their RRSPs are gone – leaving them no savings for their retirement years.
We know that the vast majority of people who file for bankruptcy are honest but unfortunate debtors – who will go to great lengths to pay off their debts. However, it is important to know that the government of Canada supports a person’s right to hold on to their RRSPs (except for payments made into the RRSP in the previous 12 months) – even if they go into bankruptcy.
What does this mean to you?
If you are in serious financial trouble, overcome by debt and considering filing for bankruptcy or a consumer proposal – before you cash in your RRSPs or RRIFs, you should consult with a Licensed Insolvency Trustee.