Can I have a bank account if I am insolvent?

Summary: This article explores whether an individual can have a bank account when insolvent, and what other implications there could be for having a bank account.

It is a common myth that if an individual is insolvent and facing bankruptcy, that they will not be able to have a bank account. This is simply not true. However, there are some considerations.

Opening a new bank account

It is possible that an individual who is insolvent and declared bankrupt may have the account used prior to the bankruptcy order frozen. Therefore, it may be a good idea to open a new account with a different bank, but it is important to declare the bankruptcy at the time of opening it. The bank may decline the account or they could impose certain restrictions on its use. It is unlikely that an overdraft or any other form of credit will be agreed. This account can continue to be used while bankruptcy restrictions are in place.

Savings and money in an account

Any money in a bank account, or indeed any savings held at the time of bankruptcy will be considered an asset and they will usually be seized by the Official Receiver or Trustee. However, they may ask for some money to be released in order for the individual to pay essential expenses.

Joint accounts

It is the job of the Official Receiver or Trustee to establish what proportion of the money in a bank account belongs to the bankrupt individual and the remaining amount will be released to the joint account holder.

Overdrawn accounts

As money owed to a bank as a result of an overdraft will be included in the bankruptcy (and also an Individual Voluntary Arrangement), it is important that the individual does not pay the bank back directly. If the individual has a second account with the same bank which is in credit, the bank is entitled to seize the money to repay some or all of the overdraft, or indeed any other credit card or loan taken out with that bank.