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Transfer at Undervalue

Transfer at undervalue:  If I move my contribution from an RESP to my sons bank account and he uses it to pay for university then I file for bankruptcy within the year can my child be forced out of school?  Can the university be asked to return the money he paid over in a bankruptcy because it is not an exempt asset and was moved within a year of filing for bankruptcy?

thank you<br /><br />Posted from: Ontario

One Response to “Transfer at Undervalue”

Jillian Taylor-Mancusi, Trustee | B.A. | C.I.R.P said...

This would be a gift or a settlement to your son. Under the Bankruptcy and Insolvency Act this is called a transfer at undervalue. With regard to a transfer at undervalue, the Act states “ On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the trustee – or order that a party to the transfer or any other person who is privy to the transfer, or all those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor – if… the party was not dealing at arm’s length with the debtor and the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of bankruptcy.”

The net result is that the estate could get a judgment against the son for the value of the gift he received. Should you file an Assignment in Bankruptcy and the RESP is still listed as one of your assets, the RESP would not be exempt and the funds would form part of your bankruptcy estate for the benefit of your unsecured creditors.