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RDSPs Exempt From Seizure in Bankruptcy in Canada
Section 67(1)(b.3) of the Bankruptcy & Insolvency Act states that a registered disability savings plan (RDSP) is not an asset that the trustee will seize and distribute to creditors, except for contributions made in the 12 months before the date of bankruptcy.
What are RDSPs?
An RDSP is a registered savings plan designed to help Canadians with disabilities save for the long-term financial needs of a disabled person, including medical, care and living costs. RDSPs can only be setup for someone who is eligible to receive the Disability Tax Credit.
If this is for your child, you can only begin making contributions after your child is diagnosed with an eligible disability. You can also apply for an RDSP on your own behalf as an adult.
Like an RESP, an RDSP allows a disabled person, and their family members, to set aside funds in a separate trust account for a designated beneficiary – in this case the disabled individual. Contributions are not tax deductible but income earned on the funds are tax-deferred until they are withdrawn. The government provides additional support through matching grants and bonds.
RDSPs were introduced in 2008 as part of the Canada Disability Savings Act. Interestingly, in the same year the federal government made changes to the Bankruptcy and Insolvency Act to protect RRSP and RRIF contributions, but did not include RDSPs.
What this means for your RDSP
If you have am RDSP, consult with a licensed insolvency trustee prior to filing a consumer proposal or bankruptcy. In most cases you can keep your RDSP if you file bankruptcy, except for any contributions you made in the last twelve months.
Resources mentioned in this show:
- Canajun Finances RDSP page
- Government of Canada website on RDSP Grants and Bonds
- Milburn Drysdale asdfunding.com
- Disability Tax Credit eligibility requirements
- Canada Disability Savings Act
- RDSPs and bankruptcy
