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~Gord - Victoria

2014-02-14 00:34:25

What happens to your RRSP in Bankruptcy?


What happens to your RRSP in Bankruptcy?


Registered retirement savings plans play an important role in the financial planning of many Canadians.   For those individuals whose employers do not offer retirement benefits and for those individuals who are self-employed an RRSP may be the best post retirement plan available, other than CPP and OAP benefits.


The intention of the changes in 2009 to the Bankruptcy and Insolvency Act was to protect RRSP’s and similar products from seizure during bankruptcy  to match the same level of protection of retirement benefits to those individuals who did not benefit from an employer pension plan and so that the self-employed or RRSP self-funded individuals would have the financial means to care for him or herself without ending up as a burden on society.


If your RRSP is locked-in as a result of your previous employment, the Trustee cannot seize the RRSP.  An example of a locked in RRSP is an employee who works for a company with a pension plan.  The employee leaves before retirement, so the pension plan entitlement is converted to a locked-in RRSP.  The employee cannot cash in or take money from the RRSP until he or she retires, as well, the Trustee has no further rights to the assets than the bankrupt.  This type of locked-in-RRSP continues to be exempt in bankruptcy or even outside of a bankruptcy.  Your creditors cannot access your RRSP if you yourself cannot.

Further, generally most Registered Retirement Savings Plans and Registered Retirement Income Funds are exempt from seizure by a Trustee in bankruptcy with the exception of any contributions made in the 12 months prior to the bankruptcy proceeding.  If you have a life insurance policy with an RRSP element they usually are exempt as well.  These changes have gone a long way to even out the affects of bankruptcy between those individuals who have pension plans and those that are expected to make their own financial arrangements for their individual retirements. 


The Bankruptcy and Insolvency Act also is designed to helps you to create a financial plan after bankruptcy.  Counselling is provided to assist individuals with creating a realistic budget, determining wants from needs, setting up an emergency fund and long term savings plans  such TFSA’s, RRSP's, LIF’s, GIC’s.