Creditor Protection Ideas

by admin

Of course, one can’t guarantee that a particular savings or income producing account will or will not be protected from creditors as every situation depends on a number of circumstances, such as:

The client’s situation when the account is purchased

-If and what beneficiary is named

-The creditor

Whether the account / contract is in force

-The type of account purchased (insurance or non insurance)

At the same time, it’s important and a responsibility to do all you can to try and mitigate risk as best you can using the information available.

This document covers some of the laws and legal cases that either support or deny creditor protection for both insurance and non-insurance savings and income producing investment vehicles.

Bankruptcy and Insolvency Act

The foundation of many creditor protection proceedings is the Federal Bankruptcy and Insolvency Act. The Act states three main conditions under which creditor protection doesn’t apply.

1. If the bankrupt was solvent at the time of settlement and went into bankruptcy within one year thereafter.

2. If the bankrupt was insolvent at the time of settlement and went into bankruptcy within five years thereafter.

3. If the bankrupt was solvent at the time of settlement, went into bankruptcy within five years thereafter and the bankrupt’s interest in the settled property did not pass at the time of settlement.

However, subsection 67(1)(b) of the Act excludes assets of the bankrupt that are exempt under provincial law. So, even if one of the conditions above applies to the situation, assets may still be exempt if specifically exempt under any provincial law. This brings us to the provincial insurance acts.

Common Law Province Insurance Acts

The insurance acts in Canada’s common law provinces are generally similar. The sections of the various acts relating to creditor protection state, in general, that insurance money and contracts are exempt from seizure as long as a spouse, child, grandchild or parent of the annuitant is named beneficiary. The protection also extends to the instances where an irrevocable beneficiary is named.

The beneficiary can’t be one of the policy owners where there are joint owners on a policy. The beneficiary will not be deemed an exempt beneficiary if the beneficiary is one of the owners.

Creditor protection may not apply if the transfer of assets to an insurance policy is deemed to be made with the intent to delay, hinder or defeat creditors. The transfer of assets may be considered to be a fraudulent conveyance in such a case. The concept of fraudulent conveyance is getting more and more attention these days as creditors are finding it a more successful approach to take in legal proceedings they undertake.

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