My name is Adam Rauf and I manage the Guelph office for Hoyes, Michalos & Associates Inc.
As an associate (and articling student in the process of becoming a Trustee in Bankruptcy) I meet with clients on a regular basis that are struggling with their debts.
I met with a woman this past week who is going through a very difficult financial time. She had worked very hard to try and help her children with their post-secondary education by setting aside close to $30, 000 in RESP’s for her kids. Desperately wanting to preserve the funds for her children, we sat down and looked at her options. The first question she asked me was:
“How will a bankruptcy affect my RESP’s?”
For anyone unfamiliar with an RESP, it’s basically a special savings plan that is registered by the Government of Canada. You are able to invest the funds and the growth is tax-free. The funds are topped up through the Canada Education Savings Grant and Canada Learning Bond.
If I go bankrupt, why do I lose the RESP for my children?
An RESP is generally held not to be a true trust, and is cashable by the plan-holder. Because the plan holder (usually the parent) can cash out the RESP at any time, the RESP is considered to be an asset of the plan-holder. Therefore, if the plan-holder is bankrupt, the RESP is seized by the Trustee.
In a bankruptcy situation, we would have to collapse the funds, unless she was able to buy back the amount the RESP’s would be worth if they were cashed in today. If you have $30, 000 in RESP’s, the actual amount that would be received would be a lot lower due to service fees, penalties, portions being returned to the Government etc. The actually value of her RESP’s would be closer to $20, 000. So if she wanted to keep the RESP’s going, she would have to come up with the money necessary to match the cash value of the funds (which is quite difficult to do).
Thankfully there was another option – a Consumer Proposal. A consumer Proposal is a legal option to deal with your debts and is quickly becoming Canada’s Number one alternative to bankruptcy.
Simply put, a consumer proposal is an offer that you make to your creditors to pay back a portion of what you owe over a set period of time (no longer than 5 years). we were able to put together a consumer proposal that included what she would have to buy back for the consumer proposal. The consumer proposal avoids the headaches, stress and legal consequences that someone would experience when filing a second bankruptcy.
If you think a consumer proposal might be the solution for you, visit us on-line and find out more. Alternatively, feel free to call us directly at 310-PLAN and arrange a free consultation with a professional in your area. There’s no harm in sitting down with one of our trustee’s who can explain all the different options available to you.
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