Should I Keep my Bank Account in a Bankruptcy in Canada?

Consider these important facts about bank accounts in bankruptcy, if you are considering filing a bankruptcy or consumer proposal in Canada.

What should I do about my banking if I go through bankruptcy in Canada?

Most Licensed Insolvency Trustees in Canada would strongly advise you to open a new bank account before going bankrupt or filing a consumer proposal, at a bank where you have never done business or had a credit card. You should also arrange to have any regular deposits, such as your pay, changed to the new account before the bankruptcy starts. Move your money to the new account promptly, when your bankruptcy or consumer proposal starts.

But I like my bank. Why should I go through this hassle?

Because if you keep your bank account in bankruptcy, your creditors could take money from you. You need to make sure that they can’t put through debits from your bank account after your bankruptcy starts.

If you bank at a bank, and have a credit card with the same bank, it is very easy for the credit card company to debit your account if you don’t make your payment on time. Even another bank where you owe money can debit your account, if you have given them permission to do so.

When you first apply for a loan or credit card, most lending agreements give the lender the right to take money out of your bank account if you are in default. It increases their chances of getting paid.

Opening a new account may be a nuisance, because you have many items automated for your convenience: your paycheque deposit and many of your household bills (such as phone, hydro, gas, and car insurance). It will take time to contact everyone to switch over all the items in your account, but the change will let you keep better control of your money.

What are my rights at the bank?

According to the Bank Act and the Bankruptcy and Insolvency Act, you have these rights:

  • You have a right to open an account at any bank in Canada, whether or not you are bankrupt, unless the bank has other reasons (not your bankruptcy) to refuse you an account.
  • You can keep your bank account while going through bankruptcy in Canada. If your account is in good standing, and if you have not used your bank account to engage in illegal activity, you can keep your bank account.
  • You also have a right not to have creditors harass you or take money from you after you start a bankruptcy or consumer proposal. When you do this, all creditors are “stayed”, meaning that they no longer have permission to debit your account.