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The Importance of Opening a New Bank Account Before Declaring Bankruptcy or Filing a Consumer Proposal


Bankruptcy and/or a Consumer Proposal is a challenging and often overwhelming financial situation. It involves a complex legal process that helps individuals or businesses with overwhelming debt find relief and a fresh financial start. Before declaring Bankruptcy/Filing a Consumer Proposal, one crucial step is to open a new bank account at a bank where you don’t owe any money. In this blog, we will discuss the reasons why this step is important and the benefits it provides.

The biggest reason to open a new account is to avoid collection attempts 

If you owe money to a bank where you currently have an account, there is a possibility they may utilize their right of setoff. This means they can take money from your account to satisfy the debt you owe them.

If you previously gave the account information to another creditor to authorize payment, the creditor may continue to try to withdraw funds. From a legal standpoint, they are not allowed to commence or to continue an action for a claim recoverable in Bankruptcy or a Consumer Proposal. However, our experience is they do, claiming “we didn’t get notice.”

The Office of the Superintendent of Bankruptcy is charged with protecting the integrity of the Bankruptcy and Insolvency Act. It has been my 33 years of experience that they will give the creditor every chance to correct their offence. At best, it may be 5-6 months before you receive your funds back. The NSF fees for your rent cheque bouncing, not having funds to purchase food, and other financial barriers are not relevant to the Office of the Superintendent of Bankruptcy. By opening a new account, you prevent these creditors from seizing funds after filing a Bankruptcy/Consumer Proposal, providing you with a sense of security and control over your funds.

Maintaining financial stability

A fresh bank account allows you to manage your finances effectively during and after Bankruptcy. It offers a clear separation between your new financial beginnings and the previous debts that led to Bankruptcy. With a new account, you can track your income, manage expenses, and start rebuilding your financial stability.

Rebuilding trust with financial institutions 

Declaring Bankruptcy can have a negative impact on your creditworthiness and relationships with financial institutions. Opening a new bank account at a different bank allows you to establish a fresh banking relationship untainted by previous financial difficulties. This helps you rebuild trust and credibility in the eyes of potential lenders and creditors.

Access to banking services 

During Bankruptcy, you might find it difficult to access certain banking services with your existing bank. They may restrict your access to your funds by placing holds on deposits or even closing your account altogether. By opening a new bank account, you ensure that you have access to basic banking services, including a debit card, online banking, and other necessary features.

Opening a new bank account at a different institution before declaring Bankruptcy/Filing a Consumer Proposal is a crucial step for individuals or businesses in financial distress. It provides essential benefits such as asset protection, financial stability, avoidance of collection attempts, and the ability to rebuild trust with financial institutions. By separating your finances from previous debts, you gain a fresh start and regain control over your financial future.

This link HERE is to a relatively new Online Canadian Bank offering zero monthly fees. Your funds are protected the same as they would be at any other Canadian Bank via CDIC insurance.


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