Change of law to help more bankrupts open bank accounts

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23 July 2013 10:18
Insolvency Service



An amendment to insolvency law that reduces financial risks for banks that offer accounts to undischarged bankrupts in England and Wales is now before Parliament as part of the draft Deregulation Bill, Business Minister Jo Swinson said today.

The amendment, brought by the Insolvency Service, will encourage more banks to open their doors to bankrupt people, making it possible for them to take part in day to day transactions just like everybody else.

The changes were introduced following concern from consumer representatives that bankruptcy was stopping people from getting bank accounts - essential for basic tasks such as receiving wages, paying bills or shopping online.

Banking representatives have been concerned that a trustee in bankruptcy could make a claim against them if a bankrupt person failed to declare any funds going through their bank account.

Currently there is no law specifically preventing a person who is bankrupt from holding a bank account. However a trustee in a bankruptcy can, in limited circumstances, consider pursuing the bank for loss of money paid out from the bankrupt’s account.

Bankruptcy offers a second chance for people who have got into unmanageable debt situations, and allows them a fresh start.

Jo Swinson said:

“I am pleased that we are now closer to removing barriers that have prevented banks from providing bank accounts for bankrupt people in the past.

“A bank account is not a luxury in this day and age, but a necessity. Most everyday transactions take place online including shopping, paying for utilities and receiving salaries. Last year, over 30,000 people were declared bankrupt and a similar number took up Debt Relief Orders, and it is only right that they get a chance to have bank accounts.

“Banks will still make the final decisions on offering accounts but I am confident that the change will make it more appealing to them. It will also offer a new lifeline to vulnerable people who have struggled to access basic financial services.”

Citizens Advice Chief Executive, Gillian Guy, said:

“This change in insolvency law is a fundamental step towards making sure everyone has access to a bank account. A bank account is an essential part of day to day life; without it people struggle to receive wages and can’t pay bills through direct debit. With universal credit around the corner, it is even more important that everyone can get access to a bank account.

“I encourage banks to wholeheartedly embrace this change and to start making preparations now to offer accounts to undischarged bankrupts.”

Notes to Editors

1. The amendment is included in the draft Deregulation Bill published on 1 July 2013.
2. The amendment will mean that unless a bank has received a specific notice from a bankruptcy trustee about an asset which will benefit the estate and which the trustee is interested in, they are protected against claims from that trustee.
3. The public consultation on Bank Accounts for Bankrupts ran for 12 weeks, from November 2011 to February 2012. It sought to gather evidence and offered a range of possible statutory and non statutory solutions. The Government response is available at: http://www.bis.gov.uk/assets/insolve...20response.pdf
4. The latest Insolvency Service quarterly insolvency statistics showing the number of bankruptcies and Debt Relief Orders were published on 3 May 2013 and can be found at http://www.insolvencydirect.bis.gov....305/table2.pdf
5. In England and Wales only one high street bank offers a basic bank account to applicants who are undischarged bankrupts. Consultation evidence indicates that at least 18% bankrupts cannot get their own bank account for the twelve months of their bankruptcy and are forced to operate on a cash basis or use someone else’s account.
6. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies and debt relief orders) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from http://www.bis.gov.uk/insolvency%20

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