The number of people who have had the same bank account since they were children is surprising. They feel a sense of dedication to their financial institution and have a relationship with their local branch.
I am often asked if they can retain their bank account if they file a bankruptcy or proposal. The answer is – it depends.
If you owe
If you owe your bank any money – overdraft of your bank account, credit card or a loan – then you will have to open a new bank account at a new financial institution.
Your bank has the right to set-off (take) any funds in your bank account against the debt that is owed to them upon you filing an insolvency. Technically, they can’t take any funds after the date of insolvency, but it is always cleaner to change banks to ensure you are not scrambling to have your funds released.
If your creditors have access to your bank account via pre-authorized payments (“PAPs”) or postdated cheques (yes, some people still write cheques), then you should close your bank account upon filing an insolvency. You want to ensure no further amounts are charged to your account that could possibly result in service charges and non-sufficient fund charges for which you would be responsible.
If you have a joint account with another person and owe your financial institution money, you will definitely want to close that account to ensure the co-owner is not left responsible for charges on the account.
If you don’t owe
If you have no debt owing to your financial institution and none of your unsecured creditors have access to your bank account, you can keep your bank account.
This is always easiest as there is no need to change your direct deposits and ongoing PAPs for utilities, insurance, etc.
Changing your bank accounts and potentially having your cheques held for five days is a hassle, but retaining control of your funds is well worth the trouble. Reach out to a Licensed Insolvency Trustee for a free initial assessment to fully explain all options available to deal with overwhelming debt.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
If a person files bankruptcy or a proposal and owes money to a bank that is included in said filing. Will same institution have legal right to not allow you to open new account with them ?
Hello Allan
Great question. I do not know if they have a legal right to deny opening an account for you or if it is just based on policy. I refer you you to the following two websites which may provide further insight:
https://www.canada.ca/en/financial-consumer-agency/services/banking.html
https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-banking/accounts-rights-responsibilities.html
I always recommend you choose a new financial institution to ensure no funds in your account are mistakenly applied to old debt as it would take time to recover.
Regards
Kathy Lenart