There are always basic bank accounts, of course, also known as bad credit bank accounts. They’re open to a much wider range of people, since they can be opened by those who have a bad credit rating. They don’t offer overdrafts, but do supply the most important ‘basic’ elements of banking – such as somewhere safe to keep your money, somewhere to have your income paid in, access to cash machines and access to Direct Debits.

In other words, a bad credit bank account can give someone with bad credit a way to stay on top of their finances, get access to better deals (i.e. Direct Debit discounts) and enjoy the other ‘essentials’ of modern-day life.

However, for some people it’s hard to find a bad credit bank account that’s open to them. Undischarged bankrupts are a clear example: only two high street banks provide basic bank accounts that are open to undischarged bankrupts. This can be a real problem – and the UK Government has recognised this.

Business Minister Edward Davey has described a bank account as an “essential stepping-stone” to help people get their finances back on track after they’ve run into problems with their money.

“Without access to a bank account, he said, “even the simplest financial transaction is beyond reach for an undischarged bankrupt. What I want to see are financially capable consumers who are able to effectively manage their money and make the fresh start they need.”

It’s a real issue for a lot of people. Bankruptcy tends to last a year before the individual is discharged – so how many individuals are we talking about? Throughout the UK, over 72,000 people entered bankruptcy in 2010.

So it’s good to see that the Government’s taking this very seriously – and that The Insolvency Service has launched a consultation that’ll look into the problem and see what could be done to improve things for undischarged bankrupts looking for a bank account.

That’s not to say a debt management plan or any other debt solution should be avoided, because if you’re in trouble they could make a real difference. But you must be aware of these downsides before you start on any debt solution.
 
Quick guide to debt management
On a debt management plan, you’ll reduce the amount paid towards your unsecured debts each month to make them affordable again. For example:
- You have three unsecured debts, with payments coming to £600 a month
- Because of your other commitments, you only have £350 a month available
- On a debt management plan, your total unsecured debt repayments would be reduced to £350 a month (assuming your lenders agree to this).

A reduction in your debt repayments means your debts will probably take longer to repay, because you’ll still be expected to repay everything in full – but you’ll be repaying them more slowly. This could cost you more in interest in the long run, because you’ll be paying interest for longer.

However, lenders commonly freeze interest and charges on debts covered by a debt management plan. (Just remember that they are not obliged to agree to anything.)
You’ll normally carry on with your debt management plan until your circumstances recover, or until your debts have been repaid.

Why will it damage my credit score?
Your credit rating will be affected because you’ll no longer be making the repayments you originally agreed when you took on the debt in the first place – you’ll be failing to stick to your repayment terms and this will appear on your credit report.

However, this needn’t be a huge problem in itself as long as your lenders are satisfied with the debt management plan. Lenders are legally obliged to accept any payment you make, but it’s obviously best to have their approval. Serious problems can occur if they don’t approve to reduced payments and decide to take action against you.

All records on your credit history remain for six years, and in this time, you may find it difficult to obtain new credit.