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RRSP’s and RESPs in bankruptcy

RRSPs and bankruptcy

RRSPs are exempt from seizure, although contributions made in the 12 months prior to filing for bankruptcy may be available for your creditors.

RESPs and bankruptcy

Registered Education Saving Plans (RESPs) belong to the contributor, and are therefore considered to be the contributor’s assets, not the child’s. The RESP does not officially become the child’s money until they have used it to pay for post-secondary education.

RESPs: not an exempt asset

RESPs are not on most provincial or federal bankruptcy exemption lists, and therefore RESPs will be calculated as part of your assets if you file for bankruptcy. The RESP will often be liquidated, and the moneys used by your trustee to repay your creditors.

RESPs: not always seized

Your RESPs may not be cashed out if you buy them back. You retain the can usually give your trustee the cash value of the RESPs instead, essentially buying them back from the trustee. You would have to ensure you pay the fair market value of the RESP to the trustee, which would be calculated by your RESP holding company.

If you can find the funds, buying back REPSs is preferable to cashing out RESPs as penalties for early withdrawal will be accrued. These penalties limit their cash value. The penalties sometimes mean the money you would receive is as low as 50 per cent of their face value.

RESPs and Consumer Proposals

Consumer proposals are alternatives to bankruptcy. Consumer proposals are legally binding agreements which protect your assets from debt collections. If you are eligible for a consumer proposal, and providing you uphold your payment responsibilities as laid out in the consumer proposal, RESPs and other assets are protected unless cashing them out were part of your proposal.


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