Bankruptcy and Registered Savings Plans

In most provinces, including Ontario, all Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are now exempt from seizure in a bankruptcy, except for contributions made to such a plan in the 12-month period leading up to the bankruptcy. This means that RRSPs and RRIFs are not included in the assets that can be siezed by your trustee and distributed to your creditors.

These changes were made to the Bankruptcy & Insolvency Act on July 7, 2008. Prior to that time, most RRSP’s and RRIF’s were not protected from creditors in a bankruptcy although there were exceptions. Some RRSPs, such as locked-in RRSPs or RRSPs with a life insurance component were exempt and could not be seized by the trustee for distribution to creditors. Similarly employees with company sponsored or government-sponsored pension plans found their plans protected in a bankruptcy. Since it was seen as unfair to protect some retirement savings but not others, the Bankruptcy and Insolvency Act was ammended to ensure consistent treatment for all retirement savings plans.

Under the new legislation, all RRSPs and RRIFs are exempt from seizure by the trustee, with one small exception. Funds contributed to the RRSP in the 12 months immediately prior to the date of bankruptcy are subject to seizure and become part of the assets taken by the trustee to be distributed to creditors. The purpose of this exception is to prevent abuse in the form of debtors shielding some of their assets from their creditors at a time when they are in financial trouble.

Protect Your RRSP Savings

If you are in serious financial trouble, burdened by debt and considering filing for bankruptcy or a consumer proposal, we strongly recommend that you consult with a trustee in bankruptcy BEFORE you cash in your RRSPs or RRIFs.

What do I do now?

To discuss the cost and procedures necessary to file for bankruptcy, including basic bankruptcy exemptions, we recommend you make an appointment with an accredited trustee in bankruptcy to arrange for a free, no obligation consultation.

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