What Happens To My RRSP In A Bankruptcy in Ontario?

| Category: Bankruptcy FAQ | What You Keep or Lose
Category: Bankruptcy FAQ | What You Keep or Lose | (10) comments

Your Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are yours to keep in a bankruptcy, with the exception of contributions you have made during the last 12 months.

bankruptcy-rrsp-2Changes were made to the Bankruptcy and Insolvency Act in 2009 that exempt these assets from seizure by your trustee.

What this means if that if you have $15,000  in your RRSP and you have made $1,000 in contributions in the last year, your trustee can only seize $1,000.

You’re trustee can do one of two things:

  1. Contact your RRSP company and ask that $1,000 of your RRSP money be sent to the trustee, or
  2. Make arrangements with you for you to pay the trustee $1,000 during your bankruptcy in lieu of taking the money out of your RRSP.

If you choose to have the funds removed from your RRSP, your trustee will remit any taxes owing so you do not have a tax liability as a result of the withdrawal.

What happens if I redeemed some of my RRSP before going bankrupt in Ontario?

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.

If 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. We suggest you discuss this with your trustee prior to making the decision to file for bankruptcy.

Should I Withdraw From My RRSP To Pay My Debts Rather Than File Bankruptcy?

That is up to you. Your RRSP is protected in a bankruptcy (except for contributions made in the last year), the same way a person with an employee pension plan is protected. What you choose to do may depend upon how much you have in your RRSP compared to your debts and your age when filing.

Can I Contribute To An RRSP During My Bankruptcy?

Yes, however be aware you may have to make surplus income payments and your RRSP contribution is not considered a deductible expense when calculating surplus income.

Can I Withdraw From My RRSP While I Am Bankrupt?

If you withdraw money from your RRSP while bankrupt it becomes cash.  It is no longer an RRSP, so it is no longer protected from seizure by the trustee.  In addition, you would be required to pay tax on the withdrawl, so you should discuss this with your trustee before taking money from your RRSP while bankrupt.

What Happens If I Have An RRSP Loan?

An RRSP loan is an unsecured loan (just like a credit card or unsecured bank loan).  If you file bankruptcy the loan is included on your list of creditors.  However, if you have an RRSP loan you should discuss it with your trustee prior to filing, as some less-reputable RRSP lenders may attempt to offset the loan against the funds in your RRSP.

As you can see, although the simple answer is you keep your RRSP (except for the last year’s contributions) in a bankruptcy, there are a lot of rules around RRSP transactions and your bankruptcy.

To get answers to all your questions about your investments and bankruptcy, contact an Ontario Bankruptcy Trustee today.

Leave A Comment

  1. Joe

    I am the annuitant on two individual policies (Non-registered Investment Plan). Each policy was intended as a university savings fund for each child. The beneficiary is my spouse. Are these policies included and/or considered in bankruptcy exemptions? Also, are creditors entitled to collect or seize the accounts?

    1. Ted Michalos, Bankruptcy Trustee

      I am a bit confused – the annuitant is the beneficiary, but you say that your spouse is the beneficiary (?). I can tell you that life insurance products are exempt from seizure in a bankruptcy as long as the beneficiary is a member of this group of people: grandparent, parent, spouse, child or grandchild. So if your spouse is the beneficiary they should be protected under the law. The best thing to do is ask whichever trustee you are dealing with to specifically tell you how the policies will be dealt with BEFORE you file. I hope this helps.

  2. Tara

    My husband has an RRSP that he used towards a homebuyers plan in 2003, then in 2005/2006 he filed bankruptcy. What happened to the RRSP? We pay $667 each year on our taxes but when he went to enquire about the status as he wanted to pay the balance the bank said there was $39 in his RRSP. Is CRA not obligated to put this money back into the RRSP? My husband was discharged and has been clear of bankruptcy for 9/10yrs, but we continue to pay this each year but not sure where this $667 is going since the bank does not have it.

    1. J. Douglas Hoyes, Trustee

      Hi Tare. The $667 you are paying on your taxes each year is going to CRA. It’s the tax on the money your husband withdrew from his RRSP, and all RRSP withdrawals are taxable. There are special rules with a home buyers plan (you can repay the funds over 15 years and not owe the tax), but if you don’t make future contributions to your RRSP, you pay the tax.

      With a home buyers plan you have two choices: you either pay the money back into your RRSP, so that you don’t get hit with the tax penalty, or you pay the tax, which apparently is what you are doing.

  3. Bill L.

    I hav an RRif and my business bank has taken action to personally bankrupt me. If they are successful , is my RRIF protected?

  4. Debbie Bowser

    I just retired in Manitoba I claimed bankruptcy in 2006 I’ve never been discharged my employee’s saving plane though sun life is frozen how do I get this solved

    1. Ted Michalos, Bankruptcy Trustee

      You need to contact the trustee that handled your bankruptcy and find out what you need to do in order to be discharged now. If you don’t remember who you dealt with you may contact the Office of the Superintendent of Bankruptcy and they can tell you.

  5. Connie

    If I claim personal bankruptcy, can a commercial landlord go after my RRSP’s to pay rent owing to them? We had to close our restaurant during covid and couldn’t pay rent. . Now the landlords want all money owing to them.

    1. J. Douglas Hoyes, Trustee

      Hi Connie. If you file bankruptcy, all of your debts (and assets) are dealt with by your trustee, so a creditor (your commercial landlord) cannot pursue you outside of the bankruptcy. RRSPs are exempt from seizure (meaning you don’t lose them if you go bankrupt) except for any contributions you have made in the last 12 months. Hope that helps. Please contact a licensed insolvency trustee in Ontario for more information.


Leave a Reply

Your email address will not be published. Required fields are marked *