Bankruptcy and RRSPs: everything you need to know | Raymond Chabot (2024)

Summary

Will I lose my RRSPs when I declare bankruptcy?

• No, you won’t lose everything when you declare bankruptcy. On the contrary—you’ll keep the essentials, including RRSPs and other pension funds.
• On the other hand, if you’re married and going through separation or divorce, RRSPs and pension funds are part of the family’s assets. As a result, there are some situations in which your ex-spouse could have a claim to your RRSPs and pension funds despite your bankruptcy.
• There are alternatives to bankruptcy, like a consumer proposal. Not only will it keep bailiffs from seizing your property, but it will protect your RRSPs and TFSAs.

If you declare bankruptcy, you won’t lose your RRSPs

Will you lose your RRSPs if you declare bankruptcy? The answer is no. Thankfully, if you declare bankruptcy, you get to keep the essentials—and your retirement savings are obviously essential.

The reality is that you’re more protected after declaring bankruptcy. Before bankruptcy, several types of RRSPs can be seized by your creditors. The Bankruptcy and Insolvency Act (BIA) gives you the right to file for bankruptcy and protect yourself from your creditors. You might have heard about getting “protection under the BIA.”

Under this law, as soon as you’ve filed for bankruptcy, your RRSPs and pension funds (except any contributions you’ve made in the last 12 months) are exempt from seizure. The BIA protects you. You might have heard about getting “protection under the BIA.”

And what happens after you’ve declared bankruptcy? Your debts will be settled. No one can come after you for past debts. Once you’re retired, you can take advantage of the money you worked hard to set aside!

Your pension is safe too

Your RRSPs aren’t the only assets that will be protected if you declare bankruptcy. Most of your retirement investments will be too. Here’s a list of savings products that no one can touch if you declare bankruptcy:

• RRSPs
• Employer-sponsored retirement savings plans and pensions
• Registered Retirement Income Funds (RRIFs)
• Locked-In Retirement Accounts (LIRAs)
• Fonds de solidarité FTQ or Fondaction (CSN) investments

In general, none of these products can be seized, but there are some exceptions. For example, if your spousal support is in arrears, your ex-spouse could seize your assets.

Watch out for your TFSAs and education savings

Unfortunately, your TFSAs and Registered Education Savings Plans (RESPs) aren’t protected if you declare bankruptcy. Only your retirement savings are safe.

Here’s another way to settle your debts while protecting your retirement savings

Sometimes bankruptcy is the best option if you want to start from scratch. But other times, you might want to consider the alternatives. A consumer proposal can be an interesting option.

There are many benefits to filing a consumer proposal. In particular, it protects all of your personal savings from seizure. When you submit a consumer proposal, none of your savings can be seized—not even your TFSAs or RESPs! That definitely gives it an edge over bankruptcy. But the best way to determine the right option for you would be to talk to an expert.

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