What happens to my RRSP if I file for bankruptcy?

Under Canada’s Bankruptcy and Insolvency Act, Registered Retirement Savings Plans (RRSPs) are protected if you declare bankruptcy.

In some provinces, there is a twelve-month clawback provision, meaning you will lose any money you have contributed to your plan in the last twelve months. However, any money paid into your RRSP before then is safe.

If you are considering bankruptcy, you are probably not contributing to your RRSP.

But if you have put money into your plan in the last twelve months, your Licensed Insolvency Trustee can withdraw these funds to be put towards your bankruptcy estate. If this happens, tax is paid on the withdrawal.

Alternatively, you may want to consider paying more into your bankruptcy to essentially repurchase these contributions.

Some provinces allow you to keep the entire RRSP, including all contributions made in the past twelve months.

If your RRSP is attached to a life insurance policy, and the beneficiary is family (a spouse, child, grandchild or parent), the entire amount is exempt from seizure, including contributions you have contributed in the last twelve months.

Talk to a Licensed Insolvency Trustee to discuss your available options. If you are at risk of losing RRSP funds through bankruptcy, a consumer proposal may allow you to protect the entire amount.

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See also: Savings and pensions in bankruptcy

Will I lose any other assets in bankruptcy?

To ensure you are not left destitute from bankruptcy, some assets are protected through bankruptcy exemptions, as outlined in the Bankruptcy and Insolvency Act and provincial legislation.

Simply put, this is a list of possessions and assets that you can keep if you file for bankruptcy.

Why file for bankruptcy?

There are several reasons why you might be considering bankruptcy.

You may have suffered a loss of income and can no longer pay your debts. Even if you are making regular payments, you might want to file for bankruptcy if the debt isn’t reducing and can’t be maintained.

If you are being bombarded by harassing phone calls from debt collectors and you’re feeling stressed and overwhelmed, bankruptcy could offer a way out and give you the chance to start again.

Conclusion

A Registered Retirement Savings Plan (RRSP) is a retirement savings plan you’ve worked hard to build. The good news is your RRSP is protected if you file for bankruptcy in Canada.

If you have contributed to your plan in the last twelve months, you may lose this money unless you pay this money into your bankruptcy. But it depends on where you live.

Sadly, it is common for people in financial trouble to look to cash in their RRSP long before bankruptcy because they need the money to keep up debt repayments.

As an RRSP is protected in bankruptcy, it wouldn’t make sense to use your retirement money to keep afloat.

Instead, gather your RRSP paperwork and arrange a free, no-obligation consultation with a Licensed Insolvency Trustee.

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