New proposals: a stepping stone for bankrupts

For many people, whilst bankruptcy can provide a relief from unmanageable debt pressures it can also carry its own difficulties, which can include getting approved for a bank account.

The Government recently published proposals asking for evidence about the effect bankruptcy has on individuals’ ability to access a bank account and what can be done to improve this access.

Edward Davey, Business Minister, said: “Access to a bank account is an essential stepping stone to help people manage their finances and to get them back on track after facing up to their financial difficulties. Without access to a bank account, even the simplest financial transaction is beyond reach for an undischarged bankrupt.

“What I want to see are financially capable consumers who are able to effectively manage their money, and make the fresh start they need.

“If evidence suggests that there are some people that are struggling to get a bank account, I want to see what can be done to help improve their circumstances.”

There is no specific law in place prohibiting a person who has been made bankrupt from holding a bank account; it is the individual bank which makes the decision on a case-by-case basis. In very limited circumstances, a trustee can consider pursuing the bank for loss of money from the bank account following a bankruptcy. Because of this, many banks are unwilling to even offer a basic bank account to undischarged bankrupts.

There are currently only two high street banks in England and Wales which are happy to provide undischarged bankrupts with current account. Many bankrupts are therefore forced to adopt a cash-only basis for the term of their bankruptcy, a situation which, according to a report published by Citizens Advice last year, was causing undischarged bankrupts “undue hardship”.

The Government’s consultation – due to last 12 weeks – will attempt to gain information about the number of people affected which they hope will help inform whether or not formal intervention is needed to improve access to bank accounts for people who are bankrupt.

If action is needed, the possible options are to:

-      Promote providers who currently provide access to bank accounts for undischarged bankrupts – currently two high street banks offer basic bank accounts to undischarged bankrupts. 

-      Establish a voluntary code for banks – Banks, building societies and other banking service providers already operate under a voluntary code of practice which covers certain products and services and encourages those organisations to provide clear information. The banks could sign up to a code to agree to provide accounts to undischarged bankrupts.

-      Providing guidance for trustees in bankruptcy – drafting further detail about the circumstances in which a trustee should consider a claim against a bank and when they are unlikely to, the banks would have a clearer indication of the likely risk of a claim and perhaps be reassured that it would be unlikely. 

-      Introduce legislative change – if non-statutory options seem unlikely to improve the situation, legislation could be amended to reduce or remove any potential liability on a bank. 

The consultation will close on February 9 2012.

By Miranda Atty