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Is Your RDSP Protected if You File for Bankruptcy?

14 February 2019

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Key Points

The Bankruptcy and Insolvency Act

In 2009, the Federal Government made major amendments to the Bankruptcy and Insolvency Act (the “Act”). One of the key amendments to the Act was the protection of Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). Only funds contributed in the 12 months prior to bankruptcy were exempt from this protection.

The thought process behind this decision was that it is not in the wider public interest to allow RRSPs and RRIFs to be seized. This is because a person who loses all of their retirement savings will ultimately end up relying on the public to fund their retirement.

But, what about RDSPs?

Read our guide – Can I keep my house and car if I go bankrupt?

RDSP Exemptions

A few times a year, our firm has to consider whether a Registered Disability Savings Plan (“RDSP”) is exempt. RDSPs are not specifically mentioned as exempt in the Act, and the general rule of thumb is that if an ‘asset’ is not specifically mentioned as exempt then it is seizable. The only other authority to exempt assets in specific cases is case law or the decision of an authoritative Court.

Surely, this can’t be right, morally or legally?

The Role of the LIT in RDSP Disputes

RDSPs are meant to assist severely disabled people in saving for their retirement. As disabled people are less likely to have the means to save enough for retirement, the government provides a grant of up to 300% of the initial contribution. As things stood, a seizure of assets would result in the RDSP contributions going into the bankrupt estate, while the grant would be returned to the Government.

Any reasonable person would likely surmise that seizing RDSPs is not in the public interest and comes with a far greater cost than benefit. Despite this, a Licensed Insolvency Trustee (“LIT”) does not get to choose whether an asset is exempt or not – they must follow the prevailing law.

Thankfully, in a groundbreaking Court decision named Re: Alary, the Trustee’s ability to seize an RDSP was considered and The Honourable Madam Justice Bruce did not permit the release of RDSP funds to the LIT. Consequently, unless there is an opposing decision, LITs can treat RDSPs as exempt.

Need LIT representation? Get in Touch

If you need the help of one of our Licensed Insolvency Trustees, either to carry out bankruptcy proceedings or to challenge an RDSP being seized, then get in touch for more information.