RESPs in bankruptcy
We are often asked; “what happens to RESPs when someone goes bankrupt?”. RESPs are not creditor proof, in other words they are not exempt from seizure by creditors or by bankruptcy trustees. In the event of filing for bankruptcy the trustee has a right to collapse your RESP investments to get money to make some restitution to your creditors.
There are options in how the collapse is done, talk to your trustee to understand what that would look like for you. But first, your trustee will put the investment company on notice that it takes an interest in the funds to determine what the collapsed value is. Some portion of the funds may have been made up by third party contributions either a spouse (when the policy is joint) or the government contribution – those portions of the fund are not available to the trustee.
Your spouse, or ex-spouse, should you have one, may be required to sign off, allowing the trustee to take your portion of the fund(s). The alternative is to arrange with your trustee to “re-purchase” the collapsible portion of the fund(s) – for instance you may be permitted to make regular monthly payments to cover the amount the trustee would otherwise collapse from the RESP.
For questions or concerns regarding this or any other insolvency related matter call the office at 519-646-2222