Do You Lose your RRSP When you File a Consumer Proposal?
Many people wonder about the impact of a consumer proposal on RRSP investments. A lot worry that they’ll lose the money in their RRSPs when they file a consumer proposal. This is a valid concern. After all, your RRSP contributions are funds that you have saved for retirement. This money is important because you’ll need to live off of it one day.
When you file a consumer proposal, you generally do not have to give up any assets (or your monthly payment to creditors compensates them for the value of those assets where applicable). This includes funds invested in an RRSP. Therefore, in the majority of cases, the money in your RRSP will remain untouched when you file a consumer proposal.
This is different than if you were to file for bankruptcy. In most cases, when you file for bankruptcy, you will only lose RRSP contributions that were made in the last 12 months prior to filing your bankruptcy with one exception. If your RRSP was with a life insurance company and there is a preferred beneficiary, then you will be entitled to keep this contribution. Depending on how much you invested recently, this could be a large amount of money. All other RRSP contributions made prior to that are exempt and you will be entitled to keep them.
Meeting with a licensed trustee in bankruptcy can help you understand how filing bankruptcy or consumer proposal can affect your RRSP savings as well as the impact on RESP savings, TFSAs, insurance policies and pension funds. Having a good understanding on how different debt relief processes impact your financial life is important. By speaking with a licensed trustee in bankruptcy, you can clarify these details for yourself and see how they apply to your unique situation.
Every financial situation is different and, therefore, different options for dealing with debt work differently for different people. A trustee can review your particular situation and provide you with information on the debt relief options that are available to you. This will allow you to make an informed choice on how you would like to proceed.
Other Consumer Proposal Details
If, after meeting with a trustee, you decide to file a consumer proposal, the trustee will determine what a fair offer to your creditors will be. He or she will then submit the offer to your creditors who will have 45 days to decide whether or not they wish to accept it.
If the majority of your creditors vote to accept the offer, then all are bound by its terms.
If your proposal is accepted, your main responsibility is to make the agreed upon proposal payments. In most cases, you will make a monthly payment to your trustee who will then distribute this money to your creditors. Once you have made all agreed upon payments, and fulfilled the other duties associated with a consumer proposal, your remaining outstanding debt will be forgiven.
Most proposals are completed in between one and five years. However, if you are able to pay off your proposal more quickly, you may do so. There is no penalty for increasing your monthly proposal payments or paying off the proposal in a lump sum.
You will also need to attend two financial counselling sessions. These sessions provide you with details and information on money management and budgeting. They also give you tips on how to rebuild your credit rating once your proposal is completed.
Consumer Proposals and RRSPs
As mentioned, each financial situation is different and the deciding how you wish to handle your particular situation is up to each individual. For many people, the concern of what happens to your RRSP savings will be a large consideration. When you file for bankruptcy, you may lose some of your assets. This could include RRSP contributions made in the last 12 months. If you have made large contributions during this period, this point may be very important to you. Retirement savings are important and, unfortunately, many Canadians do not have enough saved for retirement.
A consumer proposal does generally not include surrendering assets
Speaking to a licensed trustee will help you understand the differences between bankruptcy and consumer proposal and how they affect your RRSP. Trustees are licensed and registered with the federal government. They are bound by a strict code of ethics. This means they can provide you with detailed information on all options available to you that could help you reduce or eliminate your debt. An Insolvency Trustee will never pressure you into a particular situation. The decision is always yours.