Protecting RDSPs and RESPs from Bankruptcy Seizure

How many of us plan for bankruptcy? Very few. Unfortunately, it happens far too often. When it occurs, individuals inevitably struggle to rebuild their lives in the hope that one day they will become financially stable once more.

Registered Retirement Savings Plans (RRSPs) were first introduced federally in 1957. Legislation enabling Registered Retirement Income Funds (RRIFs) was subsequently brought forward in the late 1970’s thereby permitting seniors to withdraw their RRSP funds over time instead of all at once or through purchase of an annuity. Since that time, most provinces, including British Columbia, have recognized the importance of protecting RRSPs and RRIFs from creditors in the event of personal bankruptcy. They have passed legislation to protect RRSPs and RRIFs from being seized during bankruptcy. This provides a bankrupt individual a glimmer of hope that they will not be destitute in their old age. Here in British Columbia, such seizures are governed by the 1996 Court Order Enforcement Act.

In 2008 the Federal Government passed legislation to allow for the creation of Registered Disability Savings Plans (RDSPs). The RDSP is a federal, tax-deferred, long-term savings plan for people with disabilities who want to save for the future. Unfortunately, under the Court Order Enforcement Act,  RDSPs  are not listed as a registered plan in BC’s legislation and are therefore not exempt from creditor protection. Therefore, should an individual with an RDSP go into debt, their savings in the RDSP will not be protected from seizure.

Today in the Legislature I posed the the following question to the Minister of Justice:

A. Weaver: Most provinces, including British Columbia, have recognized the importance of protecting RRSPs and RIFs from creditors in the event of personal bankruptcy. They’ve passed legislation to protect these registered plans from being seized during bankruptcy. This provides a bankrupt individual a glimmer of hope that they will not be destitute in their old age. Here in B.C. such seizures are governed by the 1996 Court Order Enforcement Act. In 2008 the federal government passed legislation to allow for the creation of registered disability savings plans. These are called RDSPs. The RDSP is a tax-deferred, long-term savings plan for people with disabilities who want to save for the future. Unfortunately, under the same act, RDSPS are not listed as a registered plan and are therefore not exempt from creditor protection. My question is to the Justice Minister. It’s this. Does the government have a plan to provide creditor protection for disabled individuals as in, for example, the province of Alberta?

The Minister of Justice responded:

Hon. S. Anton: I thank the member opposite for bringing this matter to the attention of the House, because it is an important one. Our government is committed to modernizing our laws and keeping them up with protecting our vulnerable citizens. When new things come along, like this particular plan, it has to keep up as well. It is an important issue for people with disabilities and their families. We are looking at it as part of the general review of the Court Order Enforcement Act. We’re looking at our legislation. We’re comparing it with other provinces to ensure harmonization. There are complex questions attached to the issue, I’m told, but we will be looking at those. I’d be glad to keep the member abreast of where we’re going and keep him involved in the discussion, because it is a matter that needs to be addressed

The Federal Government has also created the Registered Education Savings Plan (RESP) designed to allow parents to save for their children’s education after they graduate from high school.

Today in the House, I also posed the supplemental question to the Minister of Justice:

A. Weaver: The province of Alberta actually, just this past December, also passed legislation to provide creditor protection for RESPs, the registered educational savings plans. My question again is: does the government have a similar plan to protect a child who, through no fault of their own, might see their education investment seized by creditors?

The Minister of Justice responded:

Hon. S. Anton: Again, I would be very glad to have a look at that one as well. I think that the thoughts behind it are the same. I appreciate the member bringing it to our attention. I would be glad to work with him moving forward on it.

Both these answers are very reassuring and I look forward to working with government and the official opposition to bring in legislation that modernizes the Court Order Enforcement Act.

The province of Alberta has already taken such measures and amended their Civil Enforcement Act to include RDSPs under Section 92.1(I): Exemption of registered plans and registered disability savings plans. On December 13, 2013, legislation in Alberta received Royal Assent thereby also protecting RESPs from creditors.

By ensuring the financial security and well-being of those living with disabilities, we are not only providing the individuals and their loved ones with a sense of security, we are also reducing the strain on social services that incurs when individuals are unable to care for themselves. By also including RESPs in section 71.3 of the Court Order Enforcement Act, we are protecting children who, through no fault of their own, might see their education investment seized by creditors.