Can I Redeem An RRSP Before Going Bankrupt in Ontario?

| Category: What You Keep or Lose
Category: What You Keep or Lose

When you file for bankruptcy in Ontario, you are required to disclose to your bankruptcy trustee all assets you have disposed of or redeemed in the previous twelve months (or up to five years in certain cases). Thus if you cashed in your RRSP today, and went bankrupt tomorrow, you would have to provide your trustee with details of how much you received, and what you did with the money.

rrsp withdrawal and bankruptcyIf you cashed in a $500 RRSP because you were behind on your rent and were about to be evicted, it probably won’t create any issues.

However, if you cashed in a $10,000 RRSP and gambled the money away, your creditors will probably oppose your discharge from bankruptcy and ask the bankruptcy court to extend your bankruptcy until you have paid some or all of the money back.

Since your RRSP is on file with Revenue Canada, there is no point in hiding something like this from the trustee; they will find out directly from Canada Revenue Agency.

The bigger question is should you redeem your RRSP?  If you are withdrawing funds from your RRSP to keep ahead of debt payments, then you should talk to a bankruptcy trustee first. RRSP’s are exempt assets in a bankruptcy, meaning that they are not subject to seizure by your trustee. It may make more sense to claim bankruptcy to deal with your debts than drain your RRSP funds and jeopardize your retirement.

We suggest you talk to a bankruptcy trustee about any RRSP activity and filing bankruptcy prior to making the decisions.