One common question we receive when we meet with people in our Guelph office is “will I lose my RSP if I file Personal Bankruptcy?” The answer to the question depends on the type of Retirement Savings Plan (RSP) you have, as there are many different types and features available.
First, let’s consider if it is in a locked-in account (can also be called Locked In Retirement Accounts or LIRA). This type of RSP is not cashable and can only be drawn from when the person retires. Locked-in RSPs are not cashable by a trustee in bankruptcy. Most locked-in RSPs are created when people leave employers that operate Registered Pension Plans (RPP).
Second, let’s discuss what may happen if the RSP is cashable without restrictions by the individual. If it is, we need to look at the underlying investment vehicle for the funds. This is important: if the RSP is invested with a qualified Insurance Company and has a named beneficiary (a grandparent, parent, spouse, child or grandchild), then it may be exempt from seizure in bankruptcy pursuant to the Insurance Act of Ontario.
If the RSP does not fall into one of the above two cases, then it is probably cashable by a trustee in bankruptcy for the general benefit of the creditors. (If a RSP is cashed in by a trustee, then the trustee will prepare a special tax return so that there is not a tax implication to the individual.)
If you are thinking of filing bankruptcy and your RSPs are cashable, you may want to consider filing a consumer proposal (instead of bankruptcy) so that you can keep your RSPs.
If you are experiencing financial difficulty and would like to review your options in greater detail, please call us at 519-823-0330 or e-mail us. We are located at 300 Willow Road, Unit 202, Second Floor, across from the Willow West Mall, near the corner of Willow Road and Silvercreek Parkway. It is called the Cornerstone Building and we are the first office on the left side of the second floor.
