On July 7, 2008 the federal government put two long-awaited changes to federal bankruptcy law into force. Although this came unexpectedly, it is good news for many Canadians in financial trouble.
The first change reduces the student loan discharge period from ten years to seven. This means that if you have been out of school for seven years and still owe on your student loans, when you file for bankruptcy, these loans will be automatically discharged.
Second, the regulations now allow people to keep their RRSPs when they go bankrupt, with the exception of the contributions that were made in year prior to bankruptcy. Previously, most RRSPs would have been seized and the proceeds distributed to your creditors.
Please note that the implementation of these changes was unexpected. The new rules were given royal assent on December 14, 2007 but they were not expected to come into force until the fall of this year to give government officials time to draft the necessary supporting regulations. In fact, the actual regulations are not scheduled to be published until later this month so at this time, we are unsure of exactly how these new rules will be implemented.
If you have student loans that are more than seven years old and you are considering bankruptcy, talk to one of our local bankruptcy trustees about your options.
If you are considering bankruptcy and are afraid of losing your RRSPs, please contact our office today so one of our professionals can determine whether these new rules will help you.