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Retirement Plan and RRSP Protection Within Bankruptcy in Canada

Due to an ever-growing elderly population, we Canadians may not be able to rely on government pensions to fully support us during our retirement. The Canadian Government seems to have recognized this, and has initiated a series of policies to help protect our retirement savings so that we have sufficient income to support us during our golden years.

For example, employee pension plans have traditionally been exempt from seizure by creditors. Also, RRSPs that are part of a life insurance policy have also long been protected from creditors if a preferred beneficiary is named. More recently, changes to Canadian bankruptcy laws in 2008 have made almost all RRSPs and similar retirement plans exempt from creditors in a bankruptcy (with the exception of contributions made to the retirement plan in the year before bankruptcy).

Many RRSPs and similar retirement plans can be seized by creditors outside of bankruptcy.

Unfortunately, it seems that many Canadians are not aware of legal options available to help them protect their retirement savings.

Far too often, we meet people who have spent their retirement savings in an attempt to reduce their debt load. The reason most of these people started spending their retirement savings was because they were experiencing serious financial difficulties as a result of a marital breakdown, job loss, or simply using too much credit.

The end result of this exercise is often an empty retirement savings account, a pile of remaining debt, and an income tax bill from Canada Revenue Agency from having collapsed the RRSPs.

Using retirement savings to pay down debt is very admirable, but not always financially prudent; particularly if you are close to retirement age, or if your retirement savings are not sufficient to pay off your debt completely. There may be other legal options available to eliminate or settle your debts and protect your retirement savings at the same time.

Therefore, if you are experiencing financial difficulties, you should consult with an insolvency professional (such as an A. Farber and Partners Licensed Insolvency Trustee) to discuss your options, before you spend your retirement savings.