Six Reasons Why You Should Switch Banks When Filing a Proposal or Bankruptcy

Understanding the Six Reasons to Change Banks When Declaring Bankruptcy or Making a Proposal

In the realm of financial adversities, sometimes we need to resort to severe measures like filing bankruptcy or making a proposal. Amid these proceedings, an often-overlooked yet critical aspect is your banking relationship. In this piece, we will delve into the Six Reasons Why You Should Switch Banks When Filing a Proposal or Bankruptcy.

1. The complications of a Joint Bank Account

1.1 The risks of a joint account

When you file bankruptcy or make a proposal, and your spouse does not, it may lead to certain complications. Primarily, insolvency laws do not hold your spouse accountable for your debts. However, if you have a joint bank account, the situation becomes complex. Each account holder, be it your spouse or a child, is liable for the entire overdraft. Your bankruptcy or proposal protects you alone, not the joint account holder. Hence, the bank can seek the overdraft from your partner.

Note: Be mindful that some banks may revoke overdraft and credit line privileges linked to a joint account, even if the other account holder intends to maintain and gradually pay off the account.

1.2 The solution

Before you file bankruptcy or make a proposal, it’s advisable to open separate bank accounts. We suggest you switch banks to avoid any unforeseen complications.

2. Unauthorized withdrawal of funds post-filing

2.1 The predicament

There have been instances where banks continue to withdraw funds from your account even after you’ve filed for bankruptcy or a proposal. For instance, consider the case of Jack. Jack had a payday loan taking automatic payments from his checking account. After filing a proposal, he opened a new account at the same bank. However, the bank allowed the loan company to withdraw the payment from Jack’s new account, causing him significant distress.

Note: Even if you don’t owe the bank any money, they may still allow creditors to take funds from your account. Hence, it’s crucial to switch banks and close old accounts before filing.

2.2 The way out

If your account is in overdraft, you cannot close it until the balance is zero. If you’re filing bankruptcy or a proposal with an overdraft balance, include it in your liabilities.

3. Dealing with Secured Loans

3.1 Understanding Secured Loans

A secured loan is a debt collateralized by an asset you own. If you fail to pay the loan, the creditor can seize the asset. Common examples include car loans, RV loans, and property mortgages. Bankruptcy or proposals do not eliminate or modify secured loans. If you want to retain the asset, you must continue paying the loan. However, if you do not intend to keep the asset, inform the bank promptly.

Note: Before you file, decide if you will continue your secured loan payments. If you make payments afterwards, the creditor may assume you’ve committed to paying the loan and may continue to withdraw payments or pursue legal action to recover the debt.

We will continue discussing the remaining reasons in the upcoming sections. Stay tuned to understand why maintaining a bank account after filing could cause potential issues.

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