RRSP’s cashed in prior to bankruptcy

Question:  Hello.  I cashed in about $150,000 of unsecured RRSP’s earlier this year and now it looks like I will have to declare bankruptcy? I was reading on your FAQ – that a trustee must report activity in the past 12 months prior to a bankruptcy – so am I ok that I cashed my RRSP’s in prior to that or will I have problems declaring bankruptcy now? Please help.

Answer: It is true that on your Statement of Affairs, that is sent to all creditors when you file bankruptcy in Ontario, you are required to disclose whether you have sold or disposed of any property in the 12 months prior to filing bankruptcy.  That doesn’t mean you can’t file bankruptcy; it simply means that you are required to disclose it.

You have the option of disclosing what was done with the money.  If you were unemployed and used the proceeds from your RRSP to pay the rent and pay your creditors, there shouldn’t be an issue.  If you cashed in your RRSP yesterday, and declared bankruptcy today, the creditors may wonder where the money went.

Since the bank that held your RRSP is aware of it, it’s best to review the situation in detail with your trustee before you file.