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Open A New Bank Account Before Filing For Bankruptcy Or A Consumer Proposal

There are certain things that you must do when filing a Bankruptcy or Consumer Proposal. And, there is an optional step that your Licensed Insolvency Trustee (LIT) will suggest. They will recommend you open a new bank account at a different financial institution than the one you currently deal with before you file.

Why open a new bank account?

As part of the Bankruptcy or Consumer Proposal process, your LIT will advise you to open a new bank account before filing the proposal. However, you might be reluctant to open a new account for a few reasons. There is a certain amount of work involved and you may lose the benefits you have with your current financial institution. It may also seem uncomfortable to start somewhere new.

These are all valid concerns. Going through a Bankruptcy or Consumer Proposal can be stressful without starting to bank somewhere new, but the benefits will make the process worthwhile.

The benefits of opening a new bank account

When you file for Bankruptcy or a Consumer Proposal, there can be a delay before your creditors are notified. If your creditors don’t know about your situation, they will continue to take payments from your account leaving you short of the money you may need for other expenses.

Another possibility is a delay between when your financial institution finds out about your Bankruptcy or Consumer Proposal and when they input the information into their system. Credit payments will continue to come out of your account until the bank stops them, as most payments are taken automatically.

You might owe money on an account that’s in arrears at the same place where you have your bank account. Some of your credit accounts might not have payments set up to come out automatically. These are usually credit cards, overdrafts, or lines of credit. Your bank can still take money out of your bank account to cover your arrears. They can also freeze your account. If you have a frozen bank account, you won’t be able to access your funds.

Your LIT can apply to the court to have your money refunded in all these situations, but it will take time. Being short of funds could result in late payments for bills or rent, and companies will charge late fees. In addition, you could be charged NSF fees on your bank account for payments returned due to insufficient funds.

Opening a new bank account will help you avoid:

  •  payments going through your account that shouldn’t
  •  late fees
  •  extra service charges
  •  a frozen bank account

Why you might not want a new bank account

Switching financial institutions can require a bit of patience. The process can be time-consuming. Starting over at a new bank can also be challenging, which is why so many are reluctant to do it. There are a few drawbacks to opening a new bank account. However, once you are familiar with your new service provider, things will be much easier.

One objection you may have is that you could lose certain privileges you have with your existing account such as lower service charges than are offered on new accounts. Another issue may be changing your pre-authorized transactions.

The good news is there are many accounts now that are easy to open, easy to use, and free from day-to-day service charges. Many financial institutions will also help facilitate the transfers of your automatic debits and credits making the process go as smoothly as possible.

Opening a new account

There is a lot of choice for new bank accounts. You can deal with some of Canada’s big five banks- Scotiabank, BMO, CIBC, TD Bank, or Royal Bank. Credit unions are another option. You can also deal with online providers like Tangerine or Simply Financial.

It’s important to know that larger banks own some online banks. Tangerine is owned by Scotiabank, while CIBC owns Simplii Financial. If you have credit with any of the parent companies, you may want to avoid their subsidiaries.

Many of these financial institutions have new account offers for new customers, and some will allow you to open a bank account online. Of course, you’ll need a chequing account and might want to open a savings account too.

Financial institutions typically ask you to present two pieces of valid identification. One must have your name and date of birth. The other must have your name and address. No minimum deposit is required to open an account.

A financial institution cannot refuse to open a bank account for you because you are Bankrupt or have a Consumer Proposal. However, banks can refuse to open accounts in some circumstances. Typical scenarios are when they suspect the person will be using the account to commit fraud, the customer misrepresents themselves, or the customer hasn’t provided the required identification.

What to do after opening your new bank account

You should move all the money from your existing account to your new account. You can close your old bank account if it’s not in overdraft. You’ll also need to switch your payroll deposit and other deposits that automatically go into your account. Your new bank will give you the necessary forms to do this. Notify companies that take your bill payments automatically of your new account.

The benefits of a new bank account

Your LIT advised you to open a new bank account to protect your interests. Once you take all the funds from your existing account or close it, your creditors cannot take any additional payments. As a result, you’ll avoid being short of cash, late fees, and service charges. In addition, a new bank account will help give you a fresh start.

If you are interested in learning more about how Bankruptcy or a Consumer Proposal can help you, please don’t hesitate to contact Adamson and Associates at 519-310-5646 for a free consultation.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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