And we have until mid-July 2014 to do something about it.
Industry Canada is currently conducting a public consultation on the Bankruptcy and Insolvency Act – and in the discussion paper, a proposal has been made to exempt RDSP assets from seizure in insolvency proceedings.
From the paper:
In 2009, Registered Retirement Savings Plans (RRSPs) were exempted from seizure in bankruptcy.
The exemption of Registered Education Savings Plans (RESPs) was also examined in the last review. The Senate Report recommended that the Act be amended to exempt RESPs from seizure in bankruptcy if: the RESP is locked in; and, RESP contributions in the one-year period prior to bankruptcy are paid to the trustee for distribution to creditors. Largely because these conditions could not be met, which created a significant potential for abuse, RESPs were not exempted from seizure in an insolvency proceeding.
A Registered Disability Savings Plan (RDSP) is a long-term savings plan intended to assist Canadians with disabilities and their families to save for the future. Eligible parties may contribute any amount per year up to a lifetime contribution limit of $200,000. Government matching grants and bonds are also available to supplement the RDSP, depending on the amount contributed and the family income of the beneficiary.
RDSPs serve the public interest by encouraging savings for the support of people with disabilities. As a result, it has been suggested that they could be exempted from creditor claims in bankruptcy, similar to the protection provided to RRSP funds.
Supporters of an exemption for RDSPs note that there are significant differences between RESPs and RDSPs that reduce the potential for abuse in bankruptcy. Unlike an RESP, only individuals who claim the disability tax credit under the Income Tax Act qualify for an RDSP and there can only be one account for that person. Furthermore, only a parent, legal guardian or trust institution may open and contribute to the RDSP and only the beneficiary can access the funds. It is possible, however, that exempting RDSPs could create the potential for abuse that adversely impacts other creditors’ interests.
PLAN strongly believes RDSPs should be creditor proof. People do not plan on becoming bankrupt, but if they do, they do not deserve to continue paying for it for the rest of their lives. Major tenets of Canadian bankruptcy law include that a person, overwhelmed by debt, still deserves the opportunity to maintain dignity and be able to adequately rebuild wealth. Like a pension, creditors should not be able to access RDSPs and thereby negatively impact a person’s long-term financial security. (See more on what PLAN says about bankruptcy here.)
The current public consultation provides an excellent opportunity for all of us to urge the federal government to help protect people with disabilities and their futures. PLAN will submit a comment in favour of creditor protection in early July and we encourage you to do the same.
You can make a submission in two ways.
1. Email Industry Canada’s Marketplace Framework Policy Branch at:
2. Write the Director-General:
Marketplace Framework Policy Branch
235 Queen Street, 10th Floor, East Tower
Ottawa, Ontario K1A 0H5
The deadline for submissions is Tuesday, July 15th