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People recovering from bankruptcy are usually only permitted to open a basic bank account, which allows holders to have their wages, benefits and cheques paid into and from which direct debits can be paid out. Unlike most current accounts, these accounts do not offer overdraft or credit facilities. They also do not incur a monthly fee.

 

There are approximately twenty basic bank accounts on the market but the Co-op’s decision to stop offering accounts to undischarged bankrupts means that Barclays is now the only bank offering people who are recovering from bankruptcy access to the banking system.

According to the Co-op, 30% of its 330,000 basic bank account holders have been through some sort of insolvency proceedings.

John Hughes, managing director of retail banking at The Co-operative Bank, attributes the decision to change the terms of its Cashminder account to what he describes as the Co-op’s ‘disproportionate market share of the basic bank account market’.

 

‘Across the industry there has long been an un-level playing field in the provision of basic bank accounts, with our bank doing far more than most, and we have been calling for some time for this to be addressed,’ he said.

 

‘Unfortunately it has now come to the stage where our disproportionate market share of the basic bank account market has continued to grow significantly, and regretfully, we now need to take steps to address this.’

 

A spokesman for the British Bankers’ Association, which represents the UK’s major banks, supported the Co-op’s position, stating that ‘banks who accept bankrupt customers open themselves to potential legal challenges from their customer's creditors, who could have a legal claim to money passing through the account.

‘Anyone considering entering bankruptcy should seek professional advice about the other options available to them to help them resolve their debts.’

 

Una Farrell, a spokeswoman for debt counselling charity Consumer Credit Counselling Service, highlighted that some credit unions offer banking services to undischarged bankrupts.

The Co-op said that existing customers will not be affected by the changes.

Although you cannot be the director of a limited company if you are an undischarged bankrupt, you could still work as a temporary contractor as an employee through Foremans (UK) Ltd’s fully compliant umbrella service.

 

By choosing this route, you could increase your take home pay by claiming legitimate business expenses, be paid holiday pay and statutory entitlements, have a continuous employer on your CV and benefit from the support and advice of a regulated accountancy firm. For further advice, click here to contact us.