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Posted date: 2011-04-14

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What will happen to my bank account after I am made bankrupt.

What will happen to my bank account after I am made bankrupt.

When someone is making themselves bankrupt, one of the key questions that they want answering is what will happen to their bank account. Here I set out the information that is set out in the Insolvency Services handbook on bank accounts.

 

The first things that you must do when the bankruptcy order is made, is to:

- immediately stop using the cheque books and bank cards;

and

- hand them over to the official receiver as soon as possible.

 

It is likely that credit cards and the such have been on stop for a while and may even have been cut up or returned to the companies who issued them.

 

All the bank accounts are usually 'frozen' by the bank when it becomes aware of

the bankruptcy order. This is because the Official Receiver will write to them and also because they can pick up the Orders from searches of the court registers. You will need to make alternative arrangements for receiving money into your account and paying standing orders, direct debits etc.

 

The advice from the Official Receiver is that you should not try to open a new bank account before the bankruptcy order is made, because this account will also be frozen.

Some banks may allow you to keep using your existing bank account. But even if

your bank agrees to this, they will freeze the account when they first hear about

the bankruptcy order.

Any money in your account at the date of the bankruptcy order is an asset in the

bankruptcy - so it will be claimed by the Official Receiver  or the trustee (if an insolvency practitioner has been appointed in place of the official receiver).

However, the official receiver or trustee may release some money to you for

necessary domestic expenses. For many people, there will not be any significant money in a regular account and I suspect that any savings will have been used in the past to pay debts.

If the bank account is in joint names, the official receiver or trustee will decide how

much of the money to release to the joint account holder.

 

The money owed to the bank is a debt in the bankruptcy - so you must not make

any payments direct to the bank, unless it has a charge (a form of security to ensure

payment of a debt, such as mortgage) on your home. If your bank account is in joint

names, the bank can ask the joint account holder to pay all the money owed.

 

After the bankruptcy order, you may open a new bank or building society account,

but you should tell them that you are bankrupt. It is for the bank or building

society to decide whether they will let you operate a bank account, and they may

impose conditions and limits. You should not get any overdraft or credit facilities

without informing the bank or building society that you are bankrupt. You must

not write cheques that are likely to 'bounce' (be dishonoured).

 

As a bankrupt you might find it difficult to open a new bank or building society

account. Some banks may allow you to keep using your existing bank account

after they have contacted the official receiver. If not, you may wish to apply for

a 'basic bank account'. Information on which banks offer basic bank accounts to

bankrupts may be found on the Financial Services Authority website at

http://www.moneymadeclear.fsa.gov.uk/pdfs/bank_accounts.pdf

 

 

 

If your income only consists of benefit payments, state pensions and/or tax

credit payments you may wish to open The Post Office card account. This is a

very simple account that cannot be used to receive any other payments such as

Housing Benefit, occupational pension benefits or wages. The account allows

you to withdraw cash free of charge at any Post Office branch. This account may

suit you if you want a simple account that will not let you go overdrawn or incur any

charges. No credit checks will be carried out when you open this account. Further

details can be found at www.postoffice.co.uk

 

Another option is a prepaid debit card. These cards can be used in the same

way that an ordinary debit or credit card can be used, including paying bills,

transferring money and withdrawing cash from an ATM. There are no credit

checks. With a prepaid card you are limited to spending only the amount you

put on your card.

 

You do not need to tell your official receiver or trustee about any new bank

account opened after the date of the bankruptcy order unless you are asked

for that information. You do need to tell the official receiver or trustee about any

money in the account that is more than you need for reasonable living expenses.

The official receiver or trustee can claim the surplus amounts, via an income

payments order (IPO) or an income payments agreement (IPA), to pay your

creditors. Your trustee may apply to court for an IPO, which requires you to make

contributions towards the bankruptcy debts from your income. The court will not

make an IPO if it would leave you without enough income to meet the reasonable

domestic needs of you and your family.

 

Alternatively you may enter into a written agreement with your trustee, called an

IPA, to pay a certain amount of your income to the trustee for an agreed

period. IPOs and IPAs continue for a maximum of 3 years from the date the

order is made by the court or the date of the written agreement. If you fail to

cooperate, the trustee may intervene in the bank account.

 

 

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