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What will happen to my RRSPs in a bankruptcy?
Generally RRSPs are considered assets and are liquidated in a bankruptcy.
What does “locked-in” mean?
It means that you cannot cash in the RRSP, or take money out of it until you retire. Usually a trustee will also be unable to get it.
What if my RRSP is locked-in because of previous employment?
If for example, you work for a company with a pension plan, and you leave for retirement, the accumulated pension entitlement is transformed into a locked-in RRSP and a trustee is not allowed to take it.
Sometimes people get confused about the word “locked-in”. Occasionally people make a payment to an RRSP at a bank, and the funds inside the RRSP are a “locked-in” investment. It can be “locked-in” for a number of years, to allow the investor to build up a higher interest rate. If you file for bankruptcy, the trustee could cash in your five year buildup to distribute to your creditors.
Are there any other types of RRSP that can be saved from liquidation?
Yes. RRSPs that have life insurance components cannot be liquidated either. It is recommended that you consult a bankruptcy trustee in Kentville, Nova Scotia to discuss this type of RRSP, as it has the potential to be confusing.
Will RRSPs ever be made an exemptible item in a bankruptcy?
Bill C-55 was passed in November 2005 and proposed that RRSPs be exempt. However, the bill is still being written and has yet to be declared as part of the law.
It is essential that you discuss RRSPs with a licensed bankruptcy trustee in Kentville, Nova Scotia before proceeding with bankruptcy. You must fully understand the current laws in Kentville. To find a bankruptcy trustee near you, click here.
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