Why Open a New Bank Account if You Go Bankrupt?

The Prudence of Establishing a Fresh Bank Account Prior to Declaring Bankruptcy in Canada

Canadian bankruptcy laws, like those in many other countries, are designed to provide a fresh start to those who find themselves in a dire financial situation. However, there are certain steps that one can take to ensure a smoother transition during this difficult time. One such step is opening a new bank account prior to filing for bankruptcy.

The Potential Pitfalls of Sticking with Your Current Bank Account

A common misconception about bankruptcy is that once it’s declared, all previous financial obligations are immediately nullified. This is not entirely accurate. Bankruptcy proceedings involve a process where the debtor’s assets are used to pay off as much debt as possible before the remaining debt is discharged. During this time, creditors may still attempt to access funds from your bank account.

While creditors are generally law-abiding entities that aim to adhere to regulations, they can still err. The banking system is not always capable of instantly adapting to your altered financial status.


Consider a scenario where a creditor forgets to instruct their automated system to stop extracting funds from your account. Although you’ve declared bankruptcy, the system could still draw funds from your account.


Bankruptcy trustees are responsible for informing your creditors about your bankruptcy status. Nonetheless, this information may take a while to reach all necessary parties and for the changes to become effective in the banking systems. Automated debits often require a week or more to process.

Suppose an unauthorised transaction is detected. In this case, your trustee can apply to court to retrieve the money, a process that can take several days or even weeks. Meanwhile, you might find your rent cheque bouncing, and you might be unable to afford groceries.

In the midst of bankruptcy or a consumer proposal, your financial room for manoeuvre is considerably limited. Your financial life could spiral into further chaos. By opening a new bank account during bankruptcy, you can prevent such erroneous transactions.

The Possibility of a Bank Denying You Service

While it might seem counter-intuitive, a bank can refuse to provide service to you. However, this will not occur solely due to your bankruptcy status.

A bank may decline to open a bank account for you under the following circumstances:


  • Suspected illegal or fraudulent use of the account.
  • A history of unlawful or fraudulent activities with a financial service provider within the past seven years.
  • Reasonable grounds to believe that you have misrepresented yourself.
  • A perceived risk to the bank or its customers.


A bank can also deny you overdraft protection on your account if you are or have been bankrupt. This is logical since overdraft is essentially a form of credit, and bankruptcy inevitably impacts your creditworthiness.

In Conclusion: Safeguard Yourself by Opening a New Bank Account

To summarise, it is advisable to open a new bank account before declaring bankruptcy in Canada. You should also transfer your payroll deposit and other appropriate items to your new account. Since your old creditors would not be aware of your new account, they would be unable to accidentally withdraw funds from it.

For any queries about bank accounts in bankruptcy, the personal bankruptcy process, or alternatives to bankruptcy, please get in touch with a Licensed Insolvency Trustee near you.

The road to financial recovery is often fraught with difficulties. However, by taking proactive steps such as opening a new bank account, you can navigate this path with a bit more ease. Remember, bankruptcy is not the end, but a fresh start towards a more financially secure future.

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