Can an undischarged bankrupt open a bank account?

When a person becomes bankrupt, it is usual for the official receiver (or trustee in bankruptcy) to notify their bank (and building society) in order to "freeze" accounts while their finances are investigated. Following this investigation, the bank will usually close the account; most high street banks will state bankruptcy as a reason for closure of accounts in their “terms and conditions”. Any money left in a bank account when it is closed may be passed to the official receiver.

If the bankrupt has a joint bank account, depending on the circumstances, the bank may:

• close the account, refunding half of any money held in the account to the other named account holder; or
• remove the bankrupt’s name from the account and allow the other person to keep using it as a sole account holder.

The obvious difficulty for the bankrupt is that most people need a bank account to receive their salary and to make priority payments, such as household bills. Whilst it is not illegal for an undischarged bankrupt to open a bank account, the difficulty may be in finding a bank that will enter into a business relationship with them.

This Commons briefing provides an outline of the position. It considers how a bankruptcy order will affect an existing bank account and the basis on which an undischarged bankrupt may be able to open and operate a new current account. This paper is concerned with bankruptcy procedure in England and Wales. Scotland has its own individual insolvency procedure known as “sequestration”.