Saving for a child’s post-secondary education is a top priority for parents, but facing overwhelming debt creates difficult choices. If you are considering insolvency, a critical question to ask is: “Can I keep my child’s Registered Education Savings Plan (RESP) if I file for bankruptcy in Canada?” Because RESPs are generally not protected by statutory provincial bankruptcy exemptions, understanding how to preserve these funds is essential before filing.
Why RESPs Are Non-Exempt Assets in Bankruptcy
Unlike Registered Retirement Savings Plans (RRSPs) or pension funds—which are protected under federal law—Registered Education Savings Plans (RESPs) are owned by the plan subscriber (usually the parent), not the child beneficiary.
Note: Alberta is currently the primary Canadian province with specific provincial legislation providing statutory protection for RESP funds from creditor seizure. In most other provinces, RESPs vest with the trustee by default.
Option 1: Buying Back Your RESP from the Trustee
Liquidating an RESP prematurely carries heavy penalties: government grants (such as the Canada Education Savings Grant) must be returned to the government, and earnings face significant income tax clawbacks. To avoid collapsing the plan, you have the option to buy back the plan from your trustee.
- Determining the Buy-Back Value: Your trustee contacts the financial institution holding the RESP to request a “surrender statement.” This statement details the face value, government grant clawbacks, tax penalties, and net cash amount that would be realized upon collapse.
- Repaying Net Value: You do not need to match the total face value of the plan. You only need to pay the trustee the net realization value (the amount creditors would actually receive after tax penalties and grant returns).
- Flexible Payment Arrangements: Most trustees allow parents to make monthly contributions over the course of their bankruptcy term to repurchase the RESP equity, keeping the child’s education savings intact.
Option 2: Filing a Consumer Proposal to Keep 100% of Your RESP
If your RESP account balance is substantial or you lack funds to repurchase it from a trustee, filing a proposal offers the best legal protection under Canadian law:
- Canadian Consumer Proposals: A Canadian Consumer Proposal is a legally binding agreement to settle unsecured credit card debts, personal loans, and qualifying CRA tax debt relief claims for a reduced percentage over up to five years.
- Complete Asset Protection: Under a consumer proposal, **you keep 100% of your assets**—including RESPs, TFSAs, home equity, and vehicles—without any obligation to surrender property to creditors or buy back equity from a trustee.
- Halts Legal Actions Instantly: Invokes an immediate **Automatic Stay of Proceedings** to stop collection calls, court lawsuits, and wage garnishments.
Warning: Avoid Transferring RESPs Prior to Filing
Attempting to remove your name as a subscriber or transferring the RESP to a non-bankrupt spouse or relative immediately before filing bankruptcy is classified as a **Transfer at Undervalue** or fraudulent preference under Section 96 of the Bankruptcy and Insolvency Act.
Consulting a Licensed Insolvency Trustee
Federally regulated Licensed Insolvency Trustees are officers of the court directly regulated by the Office of the Superintendent of Bankruptcy (OSB). An LIT will conduct a free, confidential evaluation of your RESP accounts, explain provincial rules, and help you choose a debt solution that safeguards your family’s future.