Pros and cons of cashing out my RRSP in order to repay HELOC used to start a business, now failed?

Question

I'm in my mid 40s and a few years ago I used my HELOC to start a new business. I was paying interest only on the loan in hopes of paying off the HELOC in lump sum amounts once the business was profitable.

Unfortunately, the business has not taken off and I will need to close the business. I want to cash out my RRSPs and after tax, I will be able to repay the HELOC. The amount owing is quite large and my current/future earning potential may not support the monthly repayment which would take 25 or more years.

What are the pros and cons of paying off my HELOC with the RRSP?

From the feedback, here is some more info:

1. the business is incorported and will be dissolved.
2. the heloc is personal.

Answer 1

The loan is private, so the business is more of a red-herring. The fact that you're closing it and lost a lot of money explains the loan, but is rather irrelevant otherwise as the loan is personal. Do consider potential tax benefits on writing off a loss, talk to a local tax adviser on that.

Pros:

1. You pay off the HELOC.
2. You keep the house.

Cons:

1. You reduce significantly your retirement income
2. You pay higher tax on early withdrawal of RRSP (30%, if I understood it right, if the amount is anywhere near to being significant)
3. RRSPs are protected from creditors. Money in your pocket is not. If you walk away from the HELOC, no-one can touch your RRSP (but they can and will touch the house).
4. It will be hard to refill the RRSP. Impossible, in fact.

I'm sure there are more considerations, of course, and I'm not familiar with the Canadian social safety nets to understand how much of a damage con #1 would be.