Insolvency law is to be changed in England and Wales to encourage more banks to offer accounts to undischarged bankrupts, Business Minister Jo Swinson announced today.
The change, which follows public consultation by the Insolvency Service, will restrict the circumstances in which a trustee in a bankruptcy can make a claim against a bank.
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, pursue the bank for loss of money paid out from the bankrupts account. For this reason, most banks will not offer even a basic account to undischarged bankrupts.
Bankruptcy offers a second chance for people who have got into unmanageable debt situations, but it can sometimes lead to difficulties in keeping or opening bank accounts. Without access to an account, people may struggle with basic tasks, such as receiving wages and paying bills, and they can incur additional expenses as a result.
Jo Swinson said:
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.
Insolvency law can also cause difficulties for the banks, so thats why were amending it to help them offer more accounts to bankrupts.
Offering an account will remain a decision for the bank, but I am pleased with the positive response weve seen from the sector already and Im confident the change will offer a new life line to vulnerable people who have struggled to access basic financial services.
Citizens Advice Chief Executive Gillian Guy said:
It is vital undischarged bankrupts can get a bank account in order to get their finances back on track. Without one, its difficult for them to receive wages or pay bills by direct debit.
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.
The consultation showed that some bankrupts cannot open bank accounts. Several banks have said they would be willing to change policies if the law is amended.
An amendment will be made to existing insolvency law as soon as Parliamentary time allows.