RRSPs are exempt from seizure, although contributions made in the 12 months prior to filing for bankruptcy may be available for your creditors.
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.
All pensions and pension rollover funds are considered exempt assets in a bankruptcy.
RESPs are not considered exempt assets in Ontario, and therefore RESPs will be calculated as part of your assets if you file for bankruptcy. The RESP will often be liquidated by the trustee for the benefit of your creditors.
Your RESPs may not be cashed out if you buy them back. You can usually pay your trustee the cash value of the RESPs 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 it is affordable, buying back REPSs can be 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 percent of their face value.
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, RRSP’s, RESPs, Pensions, and other assets are protected unless cashing them was part of your accepted offer to the creditors.
If you have questions about these or other assets such as:
or any asset you can think of, and their implications if you file for bankruptcy, feel free to give us a call and we can answer all your questions.
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