Wait a minute….what’s a creditor?

A creditor is person or business that extends credit or loans. Creditors can be either “personal” or “real”.  People who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower, granting the lender the right to claim any of the borrower’s real assets (e.g. real estate, money, or car) if he or she fails to pay back the loan. Creditors are often involved in situations where a person has filed bankruptcy.

Can creditors claim a persons’ RDSP as an asset?

In the RDSP fine print, the RDSP like all registered plans has “limited protection”. That means unlike the RRSP which was recently declared creditor proof by law, the RDSP is not creditor proof. Each province has an Insurance Act which addresses creditor proof issues. In most circumstances the creditor proof legislation in each provincial Insurance Act will take priority over the federal bankruptcy rules.

The Policy in a box:

  • Currently, the RDSP is not creditor proof
  • This means that if a person with an RDSP is pursued by a creditor for an outstanding loan, the creditor may be able to claim the person’s RDSP as an asset

Why it matters?

The legislation regarding RDSP creditor protection is vague.  There may be good a reason for this, such as Creditors not being aware of the RDSP.  However, there may be ripple affects of the RDSP not having full protection.  One ripple could be when there is a division of assets– like a divorce.  If a beneficiary has a common law spouse or a matrimonial spouse, upon splitting, the RDSP could be deemed an asset that must be split 50/50 with the beneficiary’s ex-spouse. We also don’t know whether or not action taken by a creditor to claim a person’s RDSP or the division of assets – like a divorce, would trigger the 10-year holdback.

What do you think? Do you think this is a problem? We’d like to hear your experience and thoughts about the RDSP.  If you haven’t already, let us know what you think by taking a few minutes to fill out our RDSP 3 Year Review Survey here!