Bank account, savings and pension - impact of bankruptcy
Going bankrupt will have an impact on your day-to-day finances, including what happens to your bank account, savings and pension. It's therefore important you understand the effect it will have before you apply for bankruptcy.
This page explains how bankruptcy will affect your bank account, savings and pension.
Bankruptcy explainedIf you want more information about what bankruptcy is and how it works, see Bankruptcy - what you need to know.
Once a bankruptcy order is made, any bank or building society accounts you have will usually be frozen immediately. This means:
- no payments can be made in or out of your account
- you should immediately stop using your cheque book and any account cards
- you should hand over your cheque book and account cards to the official receiver as soon as possible, unless they've specifically said you can keep them
This means you should do the following before you apply for bankruptcy:
- organise alternative ways for dealing with payments and benefits that would normally be paid into your account
- organise alternative ways for dealing with payment you normally make from your account, such as energy bills
- withdraw enough money to manage your essential expenses and deal with any emergencies
The official receiver will find out from the bank what is in the account. If they decide that you need the money in the account for necessary living expenses they will tell the bank to release it to you. The bank will then decide whether or not it will let you carry on using the account. The official receiver is not involved in this decision.
You may need to open a new basic bank account to use from now on. A change to insolvency law in October 2015 means there is no barrier to banks offering you the chance to open a basic bank account, even if you're an 'undischarged bankrupt' (going through the bankruptcy process).
If you have a joint account
If you have a joint bank account, this will be frozen. The official receiver or trustee will then decide how much of the money in the account to release to the other account-holder.
If you owe a debt to your bank
If you owe the bank money, for example through an overdraft or arrears on a loan, they're entitled to take any money in your account to pay off this debt. This is known as setting off.
If you have any money in savings, these will become part of the bankruptcy estate and used to make payment towards your creditors. Depending on how much money you have in savings, you should think about whether you could avoid bankruptcy by using your savings to pay off some of your debts.
Your bankruptcy application may be refused if the Insolvency Service's bankruptcy adjudicator thinks you've got enough money in your savings to help sort out your debt problems.
If you're considering bankruptcy, you'll need expert advice. You can get advice about your debt problems and bankruptcy from your nearest Citizens Advice.
If you've got one or more pensions, becoming bankrupt may affect your pension rights. This will depend on:
- what type of pension it is
- whether you're receiving an income from your pension yet
- whether you'll be entitled to receive payments from your pension within 4 years of becoming bankrupt
EU pensions after Brexit
From 1 January 2021 if you go bankrupt any EU pension pots could be taken by the official receiver to pay debts. If this affects you get financial advice.
Pensions are a complex area. It's really important to get advice about how going bankrupt will impact your pension, before you decide to apply.
Type of pension
Most types of pension schemes are classed as approved. If your pension is approved, your pension funds won't be counted as an asset in the bankruptcy.
If your pension scheme isn't approved, the trustee can claim the funds in it as a lump sum of property, although you may have options for protecting some or all of it. You should get legal advice about this.
If you're not receiving income from your pension
If you're not going to cash in a lump sum or get regular income from your pension within 4 years of becoming bankrupt, the bankruptcy trustee can’t access any of your pension pot.
You should get advice about how your pension will be affected before you decide to proceed with applying for bankruptcy.
If you receive income from your pension
If you get an income from a pension, these payments are treated as income by the bankruptcy trustee. This means you could be asked to pay some or all of the money towards your debts, if you have more than enough income to cover your day-to-day living costs. This would normally happen under an income payments agreement or income payments order.
If your only income is from a state pension and/or other benefits such as pension credits, you won't be asked to pay any of this towards your debts.
You might want to choose not to receive payments from your pension fund in order to stop the trustee claiming them.
There's a guide to bankruptcy on GOV.UK
If you have questions about how your pension or bank account will be affected, you can contact the Insolvency Service helpline.
The Insolvency Service enquiry line
Telephone: 0300 678 0015
Monday to Friday, 9am to 5pm
You can also use the Insolvency Service's online enquiry form.