For some Canadians, bankruptcy is an essential form of debt relief. It is the pathway to a fresh financial future, clearing all of your unsecured debts and offering protection from your creditors. Most Canadians filing bankruptcy for the first time will be discharged within nine months, which means you are free to begin life after bankruptcy before you know it. For those interested in filing bankruptcy or those who are nearing discharge, you may be wondering how life after bankruptcy looks. For instance, can I keep my bank account after bankruptcy? In this article, we share all you need to know about your bank account and how to approach managing your finances after bankruptcy and beyond.
Will my bank account be closed when I file bankruptcy?
This is a fear of many Canadians looking to file bankruptcy. Even if you do not have any outstanding debts with your bank or financial institution, they will typically freeze your bank account once you go bankrupt. This is often for a few days while the receiver handling your bankruptcy checks over your transaction history. Following this, the bank may decide to close your account, meaning that you need to open a new account with a different bank. If your bank closes the account, any remaining funds will be given to the official receiver, although they may offer access to some of the funds if required for essential living costs. In other instances, the bank may allow you to keep your account provided it is a basic account. Given that nearly all of us these days require a bank account in order to receive paycheques and make payments including rent and household bills, considering opening a new account is a key part of filing bankruptcy. You should aim to open a new bank account ahead of filing bankruptcy to cause as little disruption as possible when it comes to your income and bill payments.
What about joint bank accounts?
In the case of joint accounts when filing bankruptcy, your bank or financial institution may take one of a couple of scenarios. Firstly, they will continue to freeze your bank account. Then, they may close it and refund half of the funds in the account to the other named person on the account. Alternatively, they could remove your name from the account altogether, and allow the other named individual to continue to use it as a sole account. In this scenario, half of the funds will be paid to the official receiver on your behalf to go towards your debt repayment.
What should I consider before opening a new account?
Most banks and financial institutions will offer a basic bank account which is suitable for individuals filing bankruptcy. There are a few important considerations you should bear in mind before doing so:
- Do not apply to a bank for a new account if you already have debts with them
- Request a basic account from the bank, not a current account
- Inform the bank that you require a basic account because of your financial circumstances, and state that you want an alternative to your existing account
- Check that the terms and conditions of the account will allow you to continue using it after bankruptcy
Opening a new basic account before filing bankruptcy means that you can move your income and payments to the new account immediately.
When can I open a regular bank account again?
Most banks and financial institutions in Canada will not allow individuals who are undischarged from bankruptcy to open a regular current account. Once you have been discharged from bankruptcy, however, you will be able to open an account with any bank. Most Canadians filing bankruptcy for the first time are discharged from bankruptcy within nine months. Once discharged, you may find that there are still some restrictions in the accounts you are trying to open. For instance, you may struggle to get an overdraft. This is often due to the credit checks banks run, and the fact that a bankruptcy will be recorded on your credit report. Equally, bankruptcy will affect your credit score, which can make it challenging for you to secure additional credit or loans. Another good option is getting a secured credit card like the Home Trust Visa. They are secured by a deposit which you pay upfront, unlocking a credit limit that is usually equal to the value of the deposit. Provided you make your payments on time and in full each month, it is a good way to rebuild your credit score and gain trust from lenders.
What are my rights with banks?
According to the Bankruptcy and Insolvency Act, you have the following rights as an individual filing bankruptcy:
- You have the right to have an account at any bank in Canada, whether or not you have filed bankruptcy, unless the bank has reasons to not allow you
- You can keep your bank account while filing bankruptcy in Canada. If your account is well placed and you have not used it for any illegal activity, you may keep your bank account
- You have the right to not be harassed by your creditors or have them take money from you once you have filed either bankruptcy or a consumer proposal. Once filed, a stay of proceedings is generated which offers protection from your creditors. Your Licensed Insolvency Trustee will instead negotiate and communicate with your creditors on your behalf
If you have more questions around ‘can I keep my bank account after bankruptcy?’, book a free consultation with one of our experienced Licensed Insolvency Trustees at Spergel. We have offices across Canada, and have been helping Canadians find debt relief for over thirty years. We will guide you through the bankruptcy process from beginning to end, and unlike other bankruptcy firms you will be assigned your own trustee instead of being passed from person to person.