Bankruptcy And Bank Accounts: The Facts

If your finances have run dry bankruptcy might be the only option to get you back on the road to recoveryIf you are unable to manage your debts you may be forced to declare yourself bankrupt in order to escape a vicious cycle of increasing charges, fees and fines with no means of repaying what you owe.

Bankruptcy usually lasts for a period of 12 months and is undoubtedly a difficult time but at the end, you have the peace of mind of knowing you can make a fresh financial start.

Unfortunately in many cases you will not be permitted to keep the same bank account you held prior to being declared bankrupt which means you need to find a new provider. For most people opening a bank account is a mere formality but if you have had serious credit problems, you may well be shocked to find how difficult it can be.

Here’s a guide about everything you need to know about bank accounts when you have been made bankrupt.

Becoming bankrupt

When you are declared as bankrupt, the Official Receiver will formally take over the responsibility for your bank account.

This means you will not be able to withdraw money or have access to any of the funds which are held there. You will be provided with enough cash to buy essentials, but you will no longer be accountable for paying your debts, or managing your money, until you are discharged.

The Official Receiver’s main duty is to ensure any funds you do have are protected so your creditors can receive as much as possible towards your debts. For this reason, your bank account will probably be frozen within a couple of days of the bankruptcy order being made. Do not be tempted to simply withdraw all of your money before this happens as you will be asked to explain your actions. This could be viewed as non-compliance with the terms of your bankruptcy and could mean that the court is asked to extend the period upon which insolvency conditions are imposed upon you.

The Official Receiver will communicate with your bank regarding your account and they will decide between them the best course of action. If you are keen to keep your account open, you should inform the Official Receiver. It is then up to the bank whether they are willing to allow you to continue to run the account once the Official Receiver has concluded their business. In many cases, the bank will not be willing to permit the account to remain open.

During bankruptcy

Until you have tried to run your life without the luxury of a bank account, you probably won’t realise how much you rely on it. However, without access to a place where your wages can be paid, cheques can be cashed or a debit card used, you will find paying for things much more difficult.

During your bankruptcy you will still be accountable for paying for your essentials and of course, if you are working you will still need to have somewhere for your wages to be paid. If your existing bank account is going to be closed and frozen, you will need to find an alternative sooner rather than later.

There are almost no high street banks that will be willing to provide you with an account – even one with no credit facilities attached – if you have not been discharged from bankruptcy. However, you will be eligible to open an account from a provider who does not run credit checks. These are known as guaranteed bank accounts.

In order to meet the criteria to open a guaranteed bank account, you will normally have to be aged over 18, a UK resident and able to produce at least two forms of acceptable identification. Individual providers may have other requirements but a credit check will not be carried out which means if you have a history of financial problems or have been made bankrupt, you will still be eligible.

With these kind of bank accounts, no form of credit will be provided so that means no overdraft and frequently no debit card. However, you may receive a prepaid credit card. This is a type of card which has to be ‘loaded’ with money in advance – in a similar way to a Pay As You Go phone – which then allows you to use it in the same way as a regular card. You will have to budget very carefully as you will not be able to spend more than your balance.

Discharged from bankruptcy

Once your bankruptcy has been discharged you can start to repair your injured finances

For many people, getting confirmation that their bankruptcy has been discharged allows them to breathe a huge sigh of relief and start the mammoth task of rebuilding their credit rating.

Bankruptcy is a very significant event and as such it will continue to have an impact on any financial applications for up to six years, even though it has been discharged.

For this reason, although more banks may be willing to offer you an account, you will not be able to simply pick whichever one you want; the selection is likely to remain fairly limited.

A guaranteed bank account is still a good option, particularly if you like the control it gives you over your money. However, you could now pick from a range of other bank accounts which are intended for individuals who have had credit problems in the past.

To open a bank account of a basic type could be a good option to consider. You may have to have a credit check but having a discharged bankruptcy should not be a barrier to approval. These type of accounts are often described as ‘no frills’ and don’t feature additional extras such as overdrafts or credit cards but allow you to re-enter the mainstream banking community without having to pay a monthly management cost for your account. They also permit standing orders and direct debts to be set up which will help you to manage your bills more effectively, and also save money on the cost.

Bankruptcy can have a huge impact on your banking arrangements, something which many people may not have considered in advance. There are ways however of ensuring that you keep a bank account throughout your bankruptcy, whether the order has just been made, you are in the midst of your 12 months period or have finally been discharged. Not having a bank account can make you feel very isolated and even worse about the state of your financial affairs. But the options mentioned above provide the opportunity for you to be able to continue to access banking facilities and eventually get back on your own two feet.

An article by Samantha, a vastly experienced writer of financial services articles.

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