Credit card Guide

How do I get a bank account if I am bankrupt?

Monday 19 September, 2011

People who are declared bankrupt have a hard time being accepted by any financial institutions. So how do you open that most necessary of financial services, the bank account, if you’ve been declared bankrupt?

For many people who are drowning in debt, bankruptcy seems like a tempting lifeline. But while declaring yourself bankrupt may ease your debts, it brings with it a whole world of financial exclusion. And, in a world where cash is becoming less relevant and money is increasingly transferred through fibre optic cables instead, you need a bank account.

The current account is the heart of your personal finances. Money gets pumped in and then out again to all the people you need to pay. Even for a bankrupt, it’s a pretty necessary accessory.

But bankruptcy is a stigma and getting a bank account will depend on you being either an “undischarged” or “discharged” bankrupt. Often the first thing that happens to bankrupts is their banks accounts are frozen. If you’re extremely lucky your bank might allow you to keep your existing bank account after you’ve gone bankrupt, but most banks won’t. This means you have to find a new one, fast.

Bank accounts for undischarged bankrupts

As an undischarged bankrupt, you can’t seek credit over the sum of £50 without disclosing your bankruptcy status to your creditor, so this limits your room for manoeuvre. Undischarged means you’re still in the throes of paying your creditors and the court has yet to “discharge” you of the liability of paying them.

If you're an undischarged bankrupt, the only high street banks willing to consider your basic account application are Barclays and the Co-operative Bank. But just because they’ll consider your application doesn’t mean they’ll automatically grant you banking privileges. And if they do, the account will be a very basic one.

You won’t get a cheque book and you certainly won’t get an overdraft. And it certainly won’t be free, as a range of charges will be applied, but at least you’ll have a place for your wages to be paid in to and your direct debits to be paid out of.

Pre-paid credits cards

If you’re an undischarged bankrupt, can’t get a bank account and need somewhere for your wages to be paid into, a pre-paid credit card is an option to consider.

Many of the cards allow you to have your monthly salary paid onto the card and some allow you to set up direct debits and standing orders. This won’t be a free service - you’ll probably be charged a fee every time you use the card, either a one-off flat fee or else a percentage of the transaction’s value. But some cards are better than others for both their flexibility of use and fees charged.

Another option is to ask your employer to join the OnePay Payroll Card scheme, as it’s free for your employer to join the scheme and issue cards to you and any other employees without bank accounts.

The employer pays your salary onto the card just as it would pay it into a bank account. You just use the card as you would a normal debit card. From an undischarged bankrupt’s point of view, the good thing about the Payroll Card scheme is there are no credit checks and guaranteed 100% approval.

Bank accounts for discharged bankrupts

An order of discharge is a court order given at the end of bankruptcy proceeding. It generally releases the bankrupt from all current and provable debts, and frees him or her from the legal constraints imposed on an undischarged bankrupt.

The first thing you should do when the courts discharge you as a bankrupt is make sure your credit file reflects this by checking your credit report

A discharged bankrupt is a more creditworthy prospect than an undischarged one, but this is all relative, as a discharged bankrupt will still be denied access to financial products and services people with better credit ratings take for granted.

Being discharged from bankruptcy doesn’t mean your problems are over and a bank will wholeheartedly welcome you as a customer, but it does give you more options.

Although they never really publicise the fact, high street banks are compelled by the banking code to offer a “basic” bank account to those who are considered to be “financially excluded” and that includes discharged bankrupts.

The account will indeed be basic - - it is likely to provide a debit card, a facility to pay money in and set up direct debits but no overdraft - but it will get you back on the financial “grid”.

However, it’s unlikely any bank offering such an account will allow you to complete the application process online (and therefore anonymously). You’ll probably have to attend an interview at the bank with proof of your identity and your address. You may also need to present a discharge of bankruptcy certificate.

If your application is approved, be sensible how you use the account because what the bank giveth, the bank can taketh away. Keep in mind that this is an opportunity to get your finances and your credit history back on track, so try and avoid circumstances that rock your finances and put your fledgling credit rating in jeopardy.

And remember...

Although it’s a legal proceeding where an insolvent person can be relieved of their financial obligations, bankruptcy is not a soft option: although it may wipe the financial slate clean, it is

extremely harmful to a person’s credit rating and will adversely affect your future dealings with financial organisations.

It is not something you should enter into light-heartedly.