Personal Bankruptcy and Registered Education Saving Plans (RESP)

Personal Bankruptcy and Registered Education Savings Plans: A Comprehensive Guide

Bankruptcy is a challenging financial situation that an individual or a company might face. The process is often complex and can lead to the forfeiture of assets. But, what happens to a Registered Education Savings Plan (RESP), a savings account intended for a child’s future education? Is it protected, or is it susceptible to being claimed in a bankruptcy scenario? This article will delve into the intricacies of Personal Bankruptcy and Registered Education Savings Plans.

Understanding RESPs

A Registered Education Savings Plan (RESP) is an investment tool that allows parents to save for their child’s post-secondary education. The government matches 20% of the contributions made, up to a certain limit. The funds can be accessed by the child for educational expenses and are taxed upon withdrawal.

Interplay Between RESPs and Bankruptcy

When an individual files for bankruptcy, they typically surrender their assets to a trustee. This is where the relationship between Personal Bankruptcy and Registered Education Savings Plans comes into play. RESPs, not being exempt from bankruptcy in Ontario, are considered assets that can be claimed by the trustee, given the plan-holder’s ability to cash out the RESP at any time.

The Costs of Collapsing an RESP

When an RESP is cashed in during bankruptcy, certain expenses are incurred. These include plan administration fees and the return of all government contributions. The amount the trustee receives is generally significantly less than the RESP’s value if left intact.

Protecting Your RESP in a Bankruptcy

Despite the complexities of Personal Bankruptcy and Registered Education Savings Plans, there are options to safeguard your RESP.

  1. In a bankruptcy situation, the RESP can be repurchased from the trustee. This cost is incorporated into your monthly payments.
  2. Filing a consumer proposal leaves the RESP unaffected. This is because a consumer proposal allows you to keep all assets, including any RESP funds.

In Conclusion

Navigating Personal Bankruptcy and Registered Education Savings Plans can be complex, but it is possible to protect your RESP for your child’s benefit, retain other assets, and still achieve debt relief. For a detailed discussion on your situation and options to safeguard your RESP investment, professional financial advice is recommended.

“Preserving assets for the future while managing present financial distress is a delicate balance. RESPs can be a part of the equation.”

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