If you don’t have any interest in holding on to your RESPs, then your trustee can cash out the plan and use them against your debts. However, if holding onto your RESPs for your children is a priority during bankruptcy, there are ways that you can do this, including:
This option allows you to pay for the RESP by offering payment equal to the cash value of your RESP to your trustee. You are in a sense buying back your RESP from your bankruptcy.
When an RESP is cashed out, there are penalties associated, and this can reduce the overall cash value of the RESP to half or less or what it was worth. For this reason, it’s recommended that you purchase your RESP back so that you don’t lose any of the value of your plan.
In order to buy back your RESP, you must first obtain the details of your plan and its current standing. The company which holds your funds will be able to provide you with the current face value of the plan, the penalties which will be applied if the funds are cashed out, and the amount of money you will receive if the funds are cashed out.
In order to buy your RESP, you must pay your trustee the amount that would be provided to them if your plan was cashed out.
Consumer proposal option
This option recommends that you file a consumer proposal rather than file for bankruptcy, especially if the cash value of your RESP is high. A consumer proposal is a legally binding process that is administered through a Licensed Insolvency Trustee.
The trustee will work with you to create a proposal that offers to pay your creditors a percentage of what you owe them and it allows for an extension on time allowed to pay off your debt, or both.
This means that when you file a consumer proposal, you are not surrendering the assets you own to help pay off your debts. Rather, you continue to pay what you owe or a portion of it, over time. The consumer proposal allows you to hold on to your assets, including your RESP, but you will have to offer to pay your creditors more than they would receive if you were to file for bankruptcy or a proposal.
Holding on to savings for your child’s education and bankruptcy can seem like opposing battles, where only one can win. However, this isn’t necessarily the case. There are ways to hold on to your RESP and still rehabilitate your financial situations through bankruptcy or a consumer proposal.
Each situation is different, and the best options available to you can be determined based on many factors, including your priorities and your plan value. In order to make an informed decision to help you hold on to your RESP, speak to a trustee who can offer the best plan for you.
To learn more about how to keep and RESP during bankruptcy, call Kevin Thatcher & Associates at 1-888-329-5198 or contact us here.