Why Open a New Bank Account if you Go Bankrupt in Canada?

Then why should I worry about creditors taking my money?

You should open a new bank account if about to go bankrupt. Otherwise, here’s what could happen.

Your creditors are probably law-abiding people, who try to follow all the regulations. But they can make mistakes, and the banking system can not always respond instantly to your changed status.

If a human being forgets to tell the computer not to take money from your bank account, bankruptcy will not stop them, since the computer could debit your account without your knowledge.

While your trustee will notify your creditors promptly about your bankruptcy or proposal, it will take time for the notifications to reach the right people and for their changes to take effect in the banking computer systems. Pre-authorized debits often take a week or more to go through the system.

Once such a non-permitted transaction is discovered, your trustee can apply to court to get the money back, but that may take days or even weeks. In the meantime, your rent cheque has bounced and you can’t buy groceries.

In a bankruptcy or consumer proposal, you have less room to move, and your financial life could be even more of a mess. If you open a new bank account in a bankruptcy, such wrong transactions cannot go through.

Can a bank ever refuse service to me?

Yes, but not simply because you are bankrupt.

A bank can refuse to open a bank account for you if:

  • They have reason to believe the account will be used for illegal or fraudulent purposes.
  • You have a history of illegal or fraudulent activity with a financial services provider within the seven years before the request for a new account is made.
  • The bank has reasonable grounds to believe that you have misrepresented yourself.
  • The bank believes you pose a risk to them or other customers.

You can get more information on the federal government’s Justice Canada web site.

A bank can refuse to offer you overdraft protection on your account, if you are or have been bankrupt. This makes sense, since overdraft really is a form of credit, and bankruptcy does affect your ability to obtain credit.

Summary: Get a new bank account to protect yourself

Open a new bank account before going bankrupt in Canada and have your payroll deposit and other appropriate items transferred to your new account. Since none of your old creditors knows where your account is, they won’t be able to take money from your account accidentally.

If you have any questions about bank accounts in bankruptcy, the personal bankruptcy process [add link later], orbankruptcy alternatives, please contact a Licensed Insolvency Trustee near you for more information.