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10th December 2012

In some circumstances (connected to bad credit) banks can be reluctant to offer certain types of bank accounts. For example, it can be tough to get an account with an overdraft facility during a debt management plan. For undischarged bankrupts the issues can be much more serious and fundamental.

A few months ago the Co-op Bank withdrew from providing bank accounts to undischarged bankrupts leaving just Barclays doing so. The Government has clearly identified the immediate risk that bankrupts could be totally disenfranchised from normal banking facilities and is to step in.

Jo Swinson, who serves as the Consumer Minister, has revealed that an amendment will be made to insolvency law to make it more likely that banks will be more inclusive in the future.

The issue with current insolvency law is that there is a technical (if unlikely) threat that a bank might be held responsible if their bankrupt account holder spent money that was in their account and which should have been paid to their creditors.

Some people believe that this argument is a smokescreen and that in fact banks just consider this business to be unattractive and unprofitable. Indeed, the risks cannot surely be excessive if Barclays and Co-op are/were prepared to offer the accounts.

Will banks change their position if their fears (or excuses?) are taken away from them by a change in the law? They certainly won’t have to. There will be no compulsion that they must offer basic accounts to undischarged bankrupts.

The Co-op Bank is believed to be monitoring the situation very closely. They have let it be known that if the market in general moves towards offering bank accounts to bankrupts that they will once again make accounts available. With the lack of profit associated with these accounts there may however need to be significant pressure applied by the government to ensure that the banking industry supports financial inclusion. 

There is currently no fixed timeline for the appropriate changes to the laws in question.

Fortunately there are many fewer issues associated with getting bank accounts during debt management plans. The key point is to focus on basic accounts if your credit rating has already been damaged. All of the major banks offer basic accounts into which you can be paid and from which you can make standing order and direct debit payments. The better ones also come with debit cards and online facilities.

Three possible bank accounts to use during debt management are reviewed at:

http://www.debtmanagementplanforum.co.uk/basic_bank_accounts.php

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