Should You Have a Joint Bank Account When Facing Bankruptcy in Canada?
When encountering financial difficulties, the decision of whether to maintain a joint bank account can have significant implications. This article explores the different aspects to consider when contemplating this decision, particularly in the context of bankruptcy in Canada.
1. Establishing a New Bank Account
Prior to initiating the bankruptcy process in Canada, it is highly advisable to establish a new bank account at a financial institution where you have no existing loans, credit cards, or other financial connections. This advice is applicable whether you possess a joint bank account or not.
1.1 Why Open a New Account?
The rationale behind opening a new account is related to the time-consuming nature of processing changes to automatic payment withdrawals from your account by creditors. In the absence of a new bank account, your current financial institution might inadvertently continue to withdraw payments from your account post-bankruptcy filing.
1.2 The Role of Pay and Deposit Transfers
For the smooth transition of your funds, arrange for all your income and deposits to be routed to this new account prior to filing for bankruptcy or a consumer proposal.
2. Unique Aspects of a Joint Bank Account
If you own a joint bank account, there are a few additional factors to bear in mind.
2.1 Overdrafts
In the scenario of a joint bank account, both account holders are legally accountable for any outstanding balance on the account (i.e., overdraft).
2.1.1 Impact of Bankruptcy on Overdrafts
When you declare bankruptcy, it absolves you from the amount due on your overdraft. However, this bankruptcy protection does not extend to the other party on the account. Consequently, the other party would have to bear the full balance due on the overdraft.
2.1.2 Protecting the Other Party
Is there a way to shield the other party from this responsibility? One option could be to approach the bank and request the removal of the other party from the account prior to filing. However, this is usually a long shot as banks are typically reluctant to release anyone from their debt obligations unless the debt is completely settled.
2.2 Cash Balance
If the joint account holds a large cash balance, this asset will be subject to scrutiny by your bankruptcy trustee, who will ascertain whether it should be retained or surrendered.
2.2.1 Role of the Bankruptcy Trustee
Upon filing for bankruptcy, the trustee is tasked with reviewing your assets and assessing the bankruptcy exemptions available in your province. This process aims to determine which assets you can retain and which ones will be forfeited in bankruptcy.
2.2.2 Cash as an Asset
Cash in a bank account is considered an asset. However, you are allowed to retain a ‘reasonable amount’ of cash for your living expenses. The trustee will compare the money in your account with your usual living expenses to determine if the cash balance is reasonable.
3. Implications for the Joint Account Holder
While bankruptcy usually doesn’t impact others, a joint bank account can present some exceptions. As a result, it might be simpler to maintain separate accounts during the period of bankruptcy.
If you have any queries about joint accounts, or any other asset or debt, and how they would be treated in a bankruptcy, you may contact a Bankruptcy Canada Trustee in your area. Consultations are always free.
This article serves as a guide to navigate the complexities of maintaining a joint bank account while facing bankruptcy. However, it’s important to consult with a financial advisor or bankruptcy trustee for personalized advice based on your specific circumstances.
