If you owe money to your bank in the form of credit cards, loans, a line of credit, or an overdraft account, it’s advised you open a new bank account before you file for a Consumer Proposal or Bankruptcy. If you’ve already declared Bankruptcy or filed for Consumer Proposal, it is still possible to open a new bank account and you will be advised to do so by your LIT.
Should You Open a New Bank Account?
If you have unsecured debts (e.g. a credit card, loan) at the same bank where you have your chequing or savings account, you should consider opening a new account elsewhere. If you owe money where you currently bank, your account can be frozen and money can be taken out to cover your debts.
What Happens if You Don’t Open a New Account?
If your bank is informed that you are filing for Bankruptcy or a Consumer Proposal, they can freeze your account and take money out to cover your debts. Additionally, if you don’t close your old account, your creditors may continue to take payments out even after you’ve initiated your Consumer Proposal or Bankruptcy.
When you file for a Consumer Proposal or Bankruptcy, no creditor is allowed to continue taking out payments for unsecured debts. However, it can often take time after you file to notify all of your creditors to stop payments. As a result, payments might continue to come out of your account.
When Should You Open a New Bank Account?
You should open a new bank account before you apply for Bankruptcy or a Consumer Proposal. It’s ideal if you can open an account and transfer any remaining money out of your old bank account before your creditors are informed of your intention to file.
If you’ve already declared Bankruptcy or filed for Consumer Proposal, it is still possible to open a new bank account. A new bank can not refuse you from opening an account on the basis of filing for Consumer Proposal or Bankruptcy. This is against the law according to the Bank Act of Canada. While you can open a new account, you won’t be able to get an account with overdraft as this is a form of credit. To make things as simple as possible, it is best to open a new bank account before filing.
How to Open a New Bank Account
You might be worried about opening a new account. If you’ve been banking with the same financial institution for years, you’re probably not excited about going through the hassle of changing all of your accounts. The entire process is time-consuming and you will likely lose some of the features you have on your current account including overdraft. Just know, it will be worth it in the long run. Opening a new bank account if you’re considering filing for Consumer Proposal or Bankruptcy will give you more control over your money.
If you don’t know how to start your search for a new account, you can begin by researching the five largest banks in Canada. These include:
- Royal Bank of Canada (RBC)
- Toronto-Dominion (TD)
- Bank of Nova Scotia (Scotiabank)
- Bank of Montreal
- Canadian Imperial Bank of Commerce (CIBC)
When choosing a new bank or financial institution, ensure you don’t owe that institution any money. Many banks are affiliated and may have the same ownership. For instance, online bank Tangerine is a subsidiary of Scotia Bank, and online bank Simplii Financial is owned by CIBC. If you choose a bank that is under the same legal ownership, this won’t solve your problem.
To save money, you also want to look for a bank that comes with no monthly fees. Often virtual banks have lower fees because they don’t have a physical location. It’s easy to open a bank account online or you can enquire about fees in person or over the phone at a more traditional bank.
When it comes to actually opening a bank account, here are the steps you can take:
- Open a basic account. This should be at a new bank or financial institution in Canada where you have never banked and have no credit.
- Withdraw your money. If you have any money in your current account, deposit it into your new account.
- Change your banking information. Make sure you change your information at work, with the government, and anywhere else where you have set up direct deposit. This is to ensure your wages do not go to your old account where they may be frozen or removed.
- Change all of your bill payments. You want to be sure all of your bill payments are linked to your new bank account. This is to avoid having a car, rent, or any other payment coming out of your old account, from bouncing because there is no money available. Be sure to cancel any payments coming out of your old account.
- Close your old bank account. Note that if your account is in overdraft, you will not be able to close your account.
Have Questions? Speak to an LIT Today
Opening a bank account at a new bank where you don’t hold any credit can help you to better manage your money when you file for a Consumer Proposal or Bankruptcy. Yes, it will take time and you may lose some of the features you had on your old chequing account. But, it will be worth it in the long run.
If you are considering a Consumer Proposal or Bankruptcy to deal with your debt, your first step should be to contact a Licensed Insolvency Trustee. We can help you determine if a Consumer Proposal or Bankruptcy is the right debt management solution for you. You might have other options. If you are concerned about opening a new bank account or you have questions, we can advise you on what to do.
Please don’t hesitate to reach out for assistance. You are not alone, we can help. Contact Allan Marshall and Associates at 1-888-371-8900 or send us an email to book a free, confidential consultation with one of our licensed administrators in person or by phone.
- Government of Canada. Bank Act. Access April 23, 2022.