A bankruptcy can have a big impact on RESP’s. When you file a bankruptcy, you effectively hand over all your assets to your Insolvency Trustee, in return for elimination of your debts. The Trustee will then realize on the assets, subject to provincial or federal bankruptcy exemptions. Read how a Bankruptcy affects your RESP’s.
How will a bankruptcy affect my RESP’s?
Even though an RESP is for the benefit of a child, these funds are not exempt assets. The money in these plans is not in trust for your children, and is an asset that can be cashed in to pay off debts to creditors. The Trustee must recover the value of the RESP, for distribution to your creditors. Your Trustee would normally allow you to buy the RESP back from the Trustee. This has many advantages, because it allows you to:
- keep the grant portion received from the government, and
- to avoid any of the costs and penalties associated with cashing them out, which – depending on the plan – can often be substantial.
Upon request, the company holding your RESP will provide you with a statement detailing:
- Your contributions made to the plan;
- Government grants received;
- Investment gains (if any);
- Penalties that would have to be paid if you were to cash out the plan; and
- The net amount payable to you.
The net amount payable to you is the value that you would pay to purchase your RESP’s from your Trustee. It is also important to remember that often RESP plans are jointly owned by spouses. You would only be responsible to pay for your share of the RESP (i.e. 50% in joint ownership). Its always best to explore all your options with your Trustee who will be able to provide you necessary information to make the decision that is right for you. Schedule a free, non-obligation consultation to gain personal advice on how you can protect your RESP’s during a bankruptcy.