Address
111 Waterloo Street, Suite 310
London, ON N6B 2M4

Change Your Bank Accountant

February 11, 2021

When you are making an assignment into bankruptcy or filing a proposal your Licensed Insolvency Trustee (“LIT”) will advise you to change your bank account.  They will suggest that you bank somewhere that you do not owe any money.  You do not have to, but there may be consequences. 

In fairness some people either cannot, will not, or do not want to, for very good reasons.  Timing – their paycheque is going to be deposited the next day; they live in a small rural community with only one bank; they absolutely love the relationships they have with the staff at the bank and so on.

In spite of these reasons, as logical as they may appear, not changing accounts can have serious repercussions.  Creditors, especially the bank itself, may seize funds from the account or process preauthorized payments and post-dated cheques.  In some cases, the LIT can recover these funds and in other cases that cannot be done.

Preauthorized Withdrawals.

Some companies, including non-profits, that have preauthorization to withdraw funds may do so even if you ask them not to or if you put a “stop payment” on the account.  They get around stop payments by changing the amount on the withdrawal or by changing the name of the payee.

Right of Setoff or Offset.

The bank has a right of setoff, or offset, which means that if you owe them money and they have money belonging to you on deposit, they can retain any amount necessary to pay the obligation owed.  This is only true, however, as the date of filing.  In other words, if there is no money in the account, they cannot setoff against future amounts only what is there at the date and time of filing the bankruptcy or proposal.  Although, sometimes, due to inadvertence, or timing, they may setoff against a deposit (paycheque or otherwise) made in the days following the filing.  Those funds can be recovered but it takes time to get them back.

Bankruptcy & Insolvency Act.

Section 78 of the Bankruptcy & Insolvency Act requires that when a banker determines that a person with an account at the bank is an undischarged bankrupt, the banker has a duty to notify the LIT of the existence of the account.  The banker must the freeze the account and not allow any payments out of the account without the permission of the LIT or an order from the court.  Although clearly encoded in the legislation there are many reasons why this action is impractical, and the duty imposed by the Section is rarely followed.

Regardless of filing an insolvency it is always a good idea not to bank where you owe money. Not borrowing from the bank where your primary account is held may mean having less access to credit but that is a trade off for more control over your money.

For more information call the office at 519-646-2222