Question: I live in British Columbia. Are RRSPs exempt from creditors?
Answer: The rules regarding RRSPs and bankruptcy are the same everywhere in Canada.
You are allowed to keep your RRSP, except for whatever you have contributed in the 12 months before your date of bankruptcy.
So, for example, if you have contributed $100 per month to your RRSP for the last 10 years, you only lose the amount you have contributed in the last 12 months ($1,200 in this example).
You have two choices:
First, you could simply offer to pay the trustee the value of the non-exempt portion of your RRSP ($1,200 in this example), and then you could keep it.
Second, the trustee could contact the RRSP company and collapse the amount you have contributed in the past 12 months. The trustee would be required to pay the tax on the withdrawal, and the remaining amount would go into your estate to be distributed to your creditors.
Your trustee can explain in more detail the rules regarding RRSPs and other assets in bankruptcy, and help you make a decision. You can contact a licensed trustee here.
If you have made large contributions to your RRSP in the last year, another option would be to file a consumer proposal, so that you don’t lose anything.
My client is in bankruptcy and has a LIF under federal legislation and he is currently removing the maximum each year. He will be without income for a 3 month period and cannot take anything more out of the LIF. It appears his only option to get funds to live for this 3 month period is to unlock his LIF, transfer the funds directly to a RRSP and then remove what he needs to live. However, I don’t know if unlocking his LIF and moving the funds to a RRSP would expose his funds to his trustee. Since the funds were protected and since funds in an RRSP are protected, wouldn’t the transfer be a safe move. His situation is rather unique because even government assistance programs would only pay him about $100 per month. Thanks for any help.
Hi Earl. The short answer is that the RIF is probably protected in a bankruptcy, once the RIF is cashed in, it’s not a RIF anymore; it’s cash, so it is likely that the trustee could seize it. This is a somewhat complicated area of law, so it would be wise to review the specifics with the trustee, or with an insolvency lawyer if you want a second opinion.