Are Rrsps Liquidated Assets If I Go Bankrupt In Alberta?
Deciphering the Status of RRSPs as Liquidated Assets in Alberta Bankruptcy Cases
The world of personal finance can be a convoluted maze, especially when it comes to bankruptcy and retirement savings. In Alberta, understanding whether Registered Retirement Savings Plans (RRSPs) are considered liquidated assets in bankruptcy cases is crucial. This in-depth guide will help you navigate these complex waters.
Understanding Bankruptcy
Firstly, let’s delve into the concept of bankruptcy. Bankruptcy is a legal process that provides relief to individuals who are unable to pay their debt. It’s governed by federal and provincial legislation.
Federal Legislation
At the federal level, the governing legislation is the Bankruptcy and Insolvency Act (BIA). The BIA provides a framework for assets that can be exempt from bankruptcy proceedings.
Provincial Legislation
In Alberta, the Civil Enforcement Act (CEA) plays a pivotal role in governing bankruptcy-related matters. The act supplements the BIA, addressing provincial-specific rules and exemptions.
Deciphering the Status of RRSPs
As per the BIA, as of July 7, 2008, RRSPs and Registered Retirement Income Funds (RRIFs) are exempt from bankruptcy. There is, however, a significant caveat: any contributions made within 12 months before the bankruptcy filing date are not exempt.
Alberta’s Unique Stance
Alberta’s legislation takes a step further. As of October 1, 2009, all RRSPs and RRIFs, along with Deferred Profit Sharing Plans and Registered Disability Savings Plans, are completely exempt from bankruptcy proceedings, irrespective of the time of contribution.
Potential Issues and Reviews
The trustee overseeing the bankruptcy case may review certain aspects regarding the RRSPs.
Large Contributions
If substantial sums were transferred to the RRSP from other sources in the year leading up to bankruptcy, it may be scrutinized. For instance, if non-exempt funds were used to contribute to the RRSP shortly before declaring bankruptcy, the courts or the trustee may review this.
RRSPs Purchased with Loans
If an RRSP was bought with a loan that is now being discharged in bankruptcy, it can lead to a review. Unlike some assets, RRSPs cannot be pledged as security for a loan. If the RRSP was purchased on credit, the credit will be written off in the bankruptcy. However, the trustee may review the initial loan amount, the time of borrowing, and the current outstanding balance.
Exploring Alternatives
Given the exemption status of RRSPs in Alberta, individuals filing for bankruptcy might consider utilizing their RRSP to fund a Proposal.
The Proposal Option
A Proposal is a settlement offer to creditors, often a percentage of the outstanding debt. It can be funded from an RRSP, which the creditors cannot touch in bankruptcy.
Further Information
Understanding the status of RRSPs in Alberta bankruptcy cases is vital in making informed financial decisions. For more detailed information, it’s advisable to consult directly with a financial advisor or refer to the Bankruptcy FAQ.
In conclusion, the status of RRSPs as liquidated assets while filing for bankruptcy in Alberta is complex, but a thorough understanding can provide valuable insights into managing personal finances during challenging times.
