Canadian Parliament Exempts RRSPs and RESPs on Bankruptcy

In December, 2007, Parliament passed Bill C-12, amending the Bankruptcy and Insolvency Act. One significant amendment that will affect retirement savings is to exempt funds held in Registered Retirement Savings Funds and Registered Retirement Income Funds from the property available to creditors on bankruptcy.

There is an exception for funds contributed to a plan during the year before the bankruptcy. Property contributed during the year before the bankruptcy will be available to creditors. The reason for the one year exception is to prevent people from transferring funds into a Registered plan on the eve of bankruptcy to avoid paying their creditors.

You can read a legislative summary of Bill C-12 here. Bill C-12 has received Royal Assent, although some portions will come into affect at a later date.

The exemption from seizure in bankruptcy may not protect funds in registered plans from seizure by creditors under British Columbia law if the annuitant does not make a proposal under the Bankruptcy and Insolvency Act. As I have written before, the Canadian Bar Association, British Columbia Branch has been lobbying for provincial legislation in B.C. to protect Registered Retirement Savings Plans and Registered Retirement Income Funds from seizure by creditors.