RESP’s in Bankruptcy – Who’s Telling the Truth?

May 23rd, 2014 by Questions

One trustee told me in a bankruptcy I lose half my RESP’s another said I lose them all.
One trustee tells me move my RESP’s out of my name and I will pay less in a consumer proposal. Another said it does not matter and that RESP’s are not affected in a consumer proposal.

Who is telling me the truth on these issues?

Posted from: Ontario


One Response to “RESP’s in Bankruptcy – Who’s Telling the Truth?”

, Doug Stuive, CA | Trustee | CIRP said:

The amount of RESP you would lose in bankruptcy depends on how far along into the plan you are and whether or not you are a joint owner. In general, the RESP account is subject to seizure by the Trustee. The RESP company would determine after their fees, and the government grants are returned how much your portion of the account is worth and would collapse that portion. Depending on the value of the plan, it is sometimes possible for the account to remain active if there is a co-owner. Often, if you are the sole owner of the account the entire account would be closed.

To avoid this you have two options. You can pay the Trustee the equivalent amount that would be available to the creditors. This would allow the account to remain in tact and you would not lose your government grants. The company that holds your RESP account would be able to determine what that amount would be and then payment arrangements can be made.

The other option is to file a consumer proposal. When you file a proposal, your assets are not subject to seizure. With this option, your RESP account would also remain open. The only consideration is that normally you would have to offer your creditors a better deal than they would get if you filed for your bankruptcy. If your RESP is large enough that a large portion of the account would come to your creditors in a bankruptcy scenario, then you would normally have to pay more than that in your proposal. The payments you make in a proposal are over a maximum of five years and are based on your ability to pay monthly.

When deciding between a bankruptcy and a consumer proposal the RESP is only one factor. You must also consider your household income and the cost of filing a bankruptcy versus the cost of filing a proposal. Your income also determines the length of time you would be in bankruptcy. We recommend that you meet with a trustee to get the full picture of what each option would look like for your situation.

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