Right of setoff
I read somewhere that a person should never ever open an account at a bank that he owed money to before he went bankrupt, because even after that person was discharged, that bank still has the right of set off. Is that true?.
By the same token, if the above is true, can CRA withhold future tax refunds after my discharge from bankruptcy to set off those past liabilities?.
The right of set off with the bank technically is stayed upon the filing of a bankruptcy, the problem is that the institutions are so large that having them inform all levels of the organization takes time so using that account is risky.
As for CRA, if you have been discharged from a debt they can’t withhold future tax refunds to set off those past liabilities. The one exception is the pre-bankruptcy return. If you have a refund from that pre-bankruptcy period that can be used to set off the debt, but if it is a refund that is post-bankruptcy (and by this I am referring to the day you actually filed for bankrutpcy, not were discharged) then CRA has no right to those fundsl.