Prior to July 7, Canadians forced into bankruptcy could kiss their entire retirement savings goodbye. But thanks to a new rule implemented at the beginning of the month, creditors can no longer raid a client’s RRSP savings. The rules also apply to RRIFs and deferred profit-sharing plans.
Terri Williams, CFP and director of educational services at DundeeWealth, says the new rules are a boon to small business owners, who often risk their financial health to start up a new entrepreneurial endeavour.
The new rule is also important for professionals, such as doctors and lawyers, who don’t rely on a regular biweekly paycheque.
Wayne Rothe, a CFP with Wayne Rothe & Associates Wealth Management, says every Canadian can benefit from this rule change. “Prior to this development, a lifetime of savings would go to waste,” he adds.
The rule doesn’t just alter the financial fortunes of bankrupt Canucks, it can also alter a client’s financial plan. Previously, pension and savings in segregated funds were sheltered from creditors; now advisors can use any product to protect against bankruptcy.
“Advisors can now look at the entire world of investments that can be put in an RRSP,” says Williams.
Some advisors might be thinking they can just plough a bunch of money into a client’s RRSP a few days before they file for bankruptcy, but that won’t work. Any money added into a registered savings account 12 months prior to bankruptcy can be taken by creditors.