Bankruptcy bank account laws being changed

Insolvency laws in England and Wales are being altered to make it easier for undischarged bankrupts to get a bank account.

The move follows public consultation carried out by the Insolvency Service and it means the circumstances in which a trustee in a bankruptcy can make a claim against a bank are going to be restricted.

At the moment, no laws are in place that prevent a person who is bankrupt from having a bank account. But because a trustee in a bankruptcy can pursue the bank for loss of money paid out from the bankrupt's account, many lenders do not bother offering the service to them.

Earlier this year, the Co-op revealed it is pulling its offering for people recovering from a bankruptcy, which means that Barclays is the only high street lender that allows undischarged bankrupts to sign up.

John Hughes, managing director of retail banking at the Co-op, said the reason behind the decision is that there is an unlevel playing field in the industry at present, which means the lender currently has a disproportionate market share of the basic bank account market.

The public consultation on the matter ran for 12 weeks from November 2011 to February 2012 and it found that several banks would be willing to change their policies if the law was amended. Evidence from the consultation also found that 18 per cent of bankrupts cannot get their own bank account for the twelve months they are going through the process.

However, thanks to the changes being proposed by the government, individuals who have successfully gone through the process may find it easier to open or keep a bank account in the future.

Business minister Jo Swinson noted those in power have recognised how current insolvency law makes it difficult for banks and so that's why the rules are being amended to make the process easier for all parties.

"Having access to a bank account means being able to make vital transactions quickly and safely, avoiding the risk of carrying around large sums of money. Most of us take these everyday tasks for granted, but for bankrupts attempting to make a fresh start, they can be a whole lot more stressful," she added.

While it will still be up to lenders to decide whether or not to offer consumers a bank account, she is confident the move will offer a "new lifeline to vulnerable people who have struggled to access basic financial services".

Citizens Advice chief executive Gillian Guy thinks it is essential individuals in the UK get access to basic services such as these, as without them it is hard to receive wages or set up direct debits to pay for bills.

She remarked: "The proposed change in the law is very welcome and will mean there is no reason for banks not to provide accounts to these customers. The change needs to be brought in as a matter of urgency to help undischarged bankrupts who are currently excluded from mainstream banking."

By James Francis