Is my retirement plan/pension safe if I file for Bankruptcy?

The vast majority of Canadians who file for bankruptcy are honest but unfortunate debtors who will go to great lengths to pay off their debts.  Some of these people have cashed 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.

Under the Bankruptcy and Insolvency Act, a trustee is appointed to administer a person’s file.  When a person files for bankruptcy, they assign over their assets to the trustee.  One of the trustee’s duties is to take the assets, convert them into cash, and distribute them amongst your creditors.  Under the Act, the government of Canada supports a person’s right to hold on to their RRSPs, even in a bankruptcy.

The Act provides that a person, who files for bankruptcy, can retain the following

  • All Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFS) are exempt from seizure in bankruptcy, except for contributions made in the 12-month period leading up to the bankruptcy
  • An RRSP that is locked-in as a result of a previous employment. The most common example of a locked-in RRSP is an employee who works for a company with a pension plan. The employee leaves the company before retirement, so the employee’s accumulated pension entitlement is converted to a locked-in RRSP.
  • RRSP’s that have a life insurance element are usually exempt in a bankruptcy.

To discuss your RRSP investments and bankruptcy, make an appointment today.  We offer a free initial consultation to explore options for a financial fresh start.

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