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Should I Switch Banks before I file Bankruptcy?

I recently read that it is advised that you close your present bank account and obtain a new account (with a bank you have never dealt with) before you actually declare bankruptcy.  I have no credit cards or a bad history with my present bank. Is this step really necessary?

One Response to “Should I Switch Banks before I file Bankruptcy?”

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Chris Sinclair, CIRP, CPA, CA Licensed Insolvency Trustee said...

Quite often when a Licensed Insolvency Trustee meets a new client, the individual has some sort of credit product (e.g. credit card, personal loan, etc.) with his or her existing bank. So naturally it is prudent in those situations for a bank account to be opened at another institution where the person has no credit products. In your case you do not have credit with your existing bank so, on the face of it, you may not need a new account.

However, you also need to consider whether any of your existing creditors have your bank information for pre authorized payment withdrawals. To be clear, this does not refer to ongoing service payments such as your cell bill, or cable/internet, or car insurance or even vehicle loan payments. I am referring to unsecured creditors, who will be included in your insolvency filing, taking regular monthly payments from your account – an example could be a payday loan company. If any existing creditor takes pre authorized payments from your current account, my advice in this situation would be to seek a new bank account either at your existing institution or a new one. The alternative is trying to put stop payments in place through your bank however this can be costly and is not guaranteed to work on every case. Once you file bankruptcy or proposal you are no longer obligated to make individual payments to creditors so you do not want creditors to continue to have access to your bank account. Although the creditors should not continue to take payments after the filing of a bankruptcy or consumer proposal, as a function of automation sometimes those pre-authorized debit arrangements are not stopped in a timely manner.

Changing bank accounts to avoid continued, automated creditor payments brings about some other practical steps that must be taken. Don’t forget to inform your ongoing service providers, such as the cell phone company or vehicle insurance, that you have new pre-authorized debit coordinates.