What You Need to Know About Your Life Income Fund and Bankruptcy

  • By Jillian Taylor-Mancusi, B.A., C.I.R.P

Financial problems are stressful for everyone, but when they occur at the same time you’re thinking about retirement, they can be frightening as well. If you own a Life Income Fund and bankruptcy is a solution you’re considering, take a moment to familiarize yourself with some of the following definitions and regulations. Knowing which accounts are protected and how bankruptcy will affect them can help calm your fears.

A Canadian Retirement Fund Primer

Saving money for retirement is a high priority for most Canadians, but deciding where to put those funds at retirement can be mind boggling. LIF, LRIF, LIRA are just a few of the numerous acronyms to keep track of.

Money you save during your active working life is usually deposited into a Registered Retirement Savings Plan (RRSP). Deposits to your RRSP are made with pretax dollars and earn interest that helps you to grow your retirement fund year by year. When you are ready to retire and begin using your savings, you must transfer your money to a different type of account.

Just as your RRSP was a place to deposit cash for retirement, an LIF is an account that allows you to withdraw money. Usually, you must be 55 to begin withdrawing funds without paying a penalty, but no older than 70. Provincial law dictates the exact age limits and they vary a bit from province to province.

Bankruptcy and Your Retirement Money

Federal and provincial legislation protects your retirement funds from seizure. Neither your creditors nor your trustee can take the money you have set aside in retirement accounts. Because of relatively new laws, your RRSP is safe from seizure, except for funds you have deposited within the 12 months prior to your filing.

When it comes to your Life Income Fund and bankruptcy, it’s a bit different. Your balance is safe and can’t be touched. However, money you withdraw is counted as income and may be subject to an excess income payment. Each year the federal government publishes a chart that determines how much money you can earn while bankrupt. If you earn more than the amount allowed, the chart also indicates how much you will need to pay to your trustee. Your licensed insolvency trustee distributes excess income payments to your creditors.

Because the laws governing bankruptcy exemptions and many of the laws regulating retirement funds are determined by each province, it’s important to seek the advice of a local licensed insolvency trustee. Saskatchewan, Prince Edward Island, and Nova Scotia have different retirement account setups than other provinces. Quebec and Ontario have different RRSP withdrawal age requirements. These differences may also affect your bankruptcy.

If you have too much debt and not enough cash, your Life Income Fund and bankruptcy can work together to see you through your financial crisis and retirement.

 

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

Jillian has worked in the insolvency field since 1992. She is a graduate of the University of Manitoba. She received her Insolvency Counselor’s Qualification Certificate from Ryerson Polytechnic University in 1998, and in 2007 she attained her license as a Licensed Insolvency Trustee. Jillian is a Read More Jillian has worked in the insolvency field since 1992. She is a graduate of the University of Manitoba. She received her Insolvency Counselor’s Qualification Certificate from Ryerson Polytechnic University in 1998, and in 2007 she attained her license as a Licensed Insolvency Trustee. Jillian is a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). She is Past President of the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP).Jillian has held positions on the Armstrong Point Association, Executive of her local EDA Riding Association, Manitoba Highland Dance Association, and the Continuing Education Committee of CAIRP. Previously, Jillian was the Treasurer for the Parent Association at her daughter’s school. Currently, Jillian serves as the Vice Chair for Dressage Winnipeg. Close

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