Your bank account is the hub of your financial life. It’s where your paycheck lands and where your bills are paid—often automatically, without a second thought. If you’ve had the same account for years, the idea of switching banks may have never crossed your mind.
But if you’re considering filing a Consumer Proposal or Bankruptcy, it’s time to rethink your banking situation. Why? Because where you bank—and whether you owe them money—can significantly impact your financial stability once you file.
Will Your Bank Find Out About Your Filing?
The short answer: it depends on whether you owe them money.
Under the Bankruptcy and Insolvency Act, your Licensed Insolvency Trustee (LIT) must notify all creditors when you file a Consumer Proposal or Bankruptcy. If you have an outstanding debt with your bank—even for a secured loan like a mortgage or car loan—they will receive formal notice of your filing.
If you do not owe your bank any money, it’s unlikely they will ever know about your Bankruptcy or Consumer Proposal.
What Happens If Your Bank Finds Out?
If you have an unsecured debt (such as a credit card, line of credit, or overdraft) with the same bank where you hold your account, there’s a real risk they will take action to recover what you owe.
One of the tools banks use is called the right of offset (or right of set-off). This allows them to seize money from your account to pay down your outstanding debt—without warning.
Here’s what this could mean for you:
- Frozen Accounts – Your bank can freeze your account, cutting off access to your money.
- Seized Funds – Any money in your account could be taken to pay down your debt.
- Returned Paycheques – If your paycheck is automatically deposited, it may be sent back to your employer, delaying your access to funds.
- Unpaid Bills – Pre-authorized bill payments could be declined, potentially leading to late fees or service disruptions.
- Even if your account is in overdraft, the bank may still freeze it to prevent further transactions.
How to Protect Yourself Before Filing
Since you cannot prevent the bank from exercising its right of offset, the best strategy is to prepare in advance.
Step 1: Open a New Bank Account—Somewhere You Don’t Owe Money: Before filing for Bankruptcy or a Consumer Proposal, open a new chequing account with a financial institution where you have no existing debt.
Step 2: Transfer Your Deposits & Bill Payments: Once your new account is set up, redirect all direct deposits (such as your paycheck, pension, or benefits) to the new account. Likewise, move all pre-authorized bill payments to avoid service interruptions.
Important: Do not move payments for debts included in your Bankruptcy or Consumer Proposal (such as credit cards and lines of credit). Since these debts will no longer be repaid, those creditors do not need your new banking details.
Step 3: Close Your Old Account: Once everything is switched over, close your old account—before filing your Consumer Proposal or Bankruptcy. This ensures your former bank cannot freeze your funds or disrupt your finances once they receive notice of your filing.
Where Should You Open Your New Account?
Fortunately, Canada has many banking options, including:
- The Big Five Banks: Scotiabank, BMO, CIBC, TD Bank, and RBC.
- Online Banks: Simplii Financial and Tangerine (but avoid these if you owe CIBC or Scotiabank, respectively, as they are subsidiaries).
- Credit Unions: Manitoba has strong credit unions like Access Credit Union, Assiniboine Credit Union, and Steinbach Credit Union.
How to Choose the Best Bank for You
When selecting a new bank, consider the following:
- No Existing Debt – Avoid banks you owe money to.
- Convenient Location – Even with online banking, a nearby branch can be useful.
- Cheque Processing – If you receive physical paycheques, using the same bank as your employer may reduce hold times.
- Fees & Promotions – Compare account fees and any sign-up offers. Some banks provide cash incentives or free banking for new customers.
Taking the Right Steps Before Filing
A frozen bank account can cause unnecessary stress—but it’s entirely preventable if you take action before filing for Bankruptcy or a Consumer Proposal.
If you’re considering your options, speak to a Licensed Insolvency Trustee to ensure you’re fully prepared.
Call us at 204-925-6400 or email to book a free, no-obligation consultation.
Taking control of your financial future starts today. Let’s make sure you’re prepared.
Leigh C. Taylor, LIT
