Tuesday, December 30, 2008

Creditor protection

Creditor protection for RRSPs and RRIFs upon bankruptcy

We never plan to have financial difficulties – but in these tough economic times, it’s good to know that our personal savings have some protection.

July 2008 ushered in changes to the federal Bankruptcy and Insolvency Act. The new legislation contains the long-awaited change extending creditor protection in the event of bankruptcy to all RRSP and RRIF savings in Canada.

Before the change (and depending on specific provincial exemptions), only employer-sponsored registered pension plans and insurance-based products such as segregated funds, enjoyed protection from the claims of creditors upon bankruptcy.

The new law formally exempts all RRSPs and RRIFs, including registered bank deposits, registered mutual funds and self-directed plans, from being liquidated on behalf of creditors when an investor declares personal bankruptcy.

The only condition is that any RRSP contributions made in the 12 months prior to bankruptcy will not be exempt from seizure unless your provincial law states otherwise. This is a major win for professionals and business owners.