When filing for bankruptcy in Canada, a Licensed Insolvency Trustee (LIT) generally will not seize your child’s everyday savings account. As long as the informal “In Trust For” account genuinely holds the child’s own money, such as birthday gifts or allowance, it is protected from your creditors under federal insolvency rules.
For many parents struggling with overwhelming debt in Canada, the biggest fear is that their financial mistakes will negatively impact their children. If you are considering declaring bankruptcy, you might be terrified that the money saved up for your child’s future could be taken by creditors. 💰 Fortunately, Canadian insolvency laws are designed to be fair, targeting your personal assets and liabilities rather than the modest savings of your dependents.
It is entirely normal to feel anxious about how a Licensed Insolvency Trustee (LIT) will view your family’s finances. The Office of the Superintendent of Bankruptcy (OSB) requires full transparency, meaning all accounts with your name on them must be disclosed. 📝 However, a thorough review of the account’s history usually proves who actually owns the funds. If you want peace of mind, finding a compassionate LIT or a local debt lawyer through our directory can help you navigate this federal process smoothly.
Step-by-Step Process for Protecting Children’s Accounts in Canada
In Canada, bankruptcy is a federal process governed by the Bankruptcy and Insolvency Act (BIA). Whether you live in Vancouver, Toronto, or Halifax, the steps for disclosing and protecting your child’s bank account remain generally the same. 📋 Here is how the process typically unfolds when you file.
Step 1: Disclosing All Financial Accounts
Your first legal obligation is to provide a complete list of every bank account associated with your name. This includes joint accounts, informal “In Trust For” (ITF) children’s accounts, and Registered Education Savings Plans (RESPs). 📁 Hiding an account is a serious federal offence, so honesty is always the best policy. Your LIT will need the account numbers and recent statements.
Step 2: Proving the Source of the Funds
Once disclosed, the LIT will review the bank statements to determine the origin of the money. They are looking for patterns that prove the money belongs to your child. 👀 Small, irregular deposits from grandparents, birthday cheques, or a teenager’s part-time job earnings clearly show the funds are not your personal assets.
Step 3: Answering the Trustee’s Questions
If there are large or unusual deposits, the LIT may ask you for a written explanation. For instance, if you transferred a $5,000 tax refund into your child’s account right before filing for bankruptcy, the trustee will likely flag this as a “reviewable transaction.” ⚠️ You must clearly explain any anomalies, as moving your own money to avoid paying creditors is not permitted.
Step 4: Formal Exemption from the Bankruptcy Estate
After verifying that the account genuinely belongs to the child, the LIT will officially exclude it from your bankruptcy estate. This means the account will not be seized, frozen, or used to pay off your debts. 🔒 You can continue to manage the account on behalf of your child without interruption throughout your bankruptcy period.
How Much Does Bankruptcy Cost in Canada?
While the child’s account is safe, filing for bankruptcy does involve some mandatory costs that you should be prepared for.
- Base Trustee Contribution: Most individuals pay around $200 CAD per month to cover the administrative costs of the LIT.
- Surplus Income Payments: If your household income exceeds federal guidelines set by the OSB, you may be required to pay an additional monthly amount to your creditors.
- Mandatory Counselling: Two financial counselling sessions are required, though their cost is usually built into your monthly trustee payments.
- Federal Filing Fee: The OSB charges a small registration fee, which is generally included in your base contribution.
How Long Does the Process Take?
The timeline for a Canadian bankruptcy is federally regulated and depends on your income and history. For a first-time bankrupt without surplus income, the process is usually completed, leading to a full discharge, in 9 months. ⏱️ If you are required to make surplus income payments, the timeline is extended to 21 months. A second bankruptcy will take anywhere from 24 to 36 months to resolve.
Understanding Different Children’s Accounts
| Account Type | Description | Safety in Bankruptcy |
|---|---|---|
| Informal Trust (ITF) | A standard youth savings account opened by a parent on behalf of a minor. | Generally Safe. Protected as long as the funds clearly belong to the child (allowance, gifts). |
| RESP (Education Savings) | A registered federal plan to save for post-secondary education. | Non-exempt asset (except in Alberta). Under federal law, RESPs are considered your personal assets, and the LIT can seize all contributions since inception. However, you can often buy back the plan’s value to protect it. |
| Joint Chequing Account | An account where both the parent and an older teen actively deposit funds. | At Risk. The LIT may presume the funds belong to the bankrupt parent unless proven otherwise. |
Frequently Asked Questions (FAQ)
What if I owe money to the bank where my child’s account is held?
In Canada, banks have a “right of offset,” meaning they can take money from your accounts to cover your debts with them. However, they generally cannot touch a true “In Trust” child’s account to cover a parent’s credit card or loan debt. It is still often recommended to move the child’s account to a different banking institution just to be safe.
Can I put my own savings into my child’s account before filing?
No. Transferring your personal funds into your child’s account to hide money from creditors is considered a fraudulent preference or reviewable transaction under the Bankruptcy and Insolvency Act. The LIT has the legal authority to reverse these transfers and seize the money.
Does my child’s part-time job affect my bankruptcy?
Generally, your child’s part-time income does not heavily impact your bankruptcy. However, if they are living at home, their income might be factored into the overall household income calculation used by the OSB to determine if you must make surplus income payments.
Will the bank freeze the child’s account when I file?
Usually, the bank will not freeze a youth account. If your name is on it as a signing authority, they might temporarily place a hold until your LIT sends them formal notification that the account is exempt from the bankruptcy estate.
Are Canada Child Benefit (CCB) payments protected?
Yes. CCB payments received from the Canada Revenue Agency (CRA) are fully exempt from seizure in a bankruptcy. They cannot be taken by your LIT or your creditors, ensuring you have the funds necessary to care for your family.
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