Your Bank Account is one of the things you will need to consider if you are starting an IVA. What will happen to it depends on whether you owe your bank money or not.
- What will happen to your Bank Account in an IVA?
- When to open a new account if you need one
- What kind of account should you open?
- Should you pay for a Managed Account?
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Do I need to open a new Bank Account before starting an IVA?
If you are starting an IVA you may have to open a new Bank Account. Your new account options will depend on your credit rating. Will you be able to have a debit card with your new account? To find out more please visit: http://beatmydebt.com/self-help-guides-resources/bank-account-debt/how-to-get-a-bank-account-if-starting-an-iva
What will happen to your Bank Account in an IVA?
If you owe money to your bank you will almost certainly have to include this debt in your IVA. However as a result you will also have to stop using your bank account.
The reason is because once the Arrangement starts if your account remains open the bank could take funds from it and put them towards the debt you owe.
They can do this without your authorisation using a rule called Set Off. The only way to protect yourself is to start using a different bank which is not involved in your IVA.
If you do not owe your bank money there is no issue. They will not be informed about your IVA and you can continue using your account throughout the Arrangement.
When to open a new Bank Account if you need one
Given you need to open a new account to avoid Set Off it is best to do so as soon as possible. You do not have to wait until your IVA has started.
You can use your new account straight away. You should transfer over all of the direct debits for expenses you need to continue to pay. Also give your new bank details to your employer and anyone else paying you money.
If you cannot afford to continue paying your creditors it might be a good idea not to transfer these payment to your new account. However you should take advice before doing this.
If you stop paying your creditors these debts will get into arrears or further into arrears. This will affect your credit rating and may trigger collections action. This will stop once your IVA is accepted.
What kind of Bank Account should you open?
The type of account you should apply for will really depend on the current status of your credit rating. If it is good there is nothing to stop you opening a standard Current Account.
Where your credit rating is already poor you can still open a new account. However you will need to apply for a basic one. Most banks now offer these for free and provide with internet banking and a debit card facilities.
It is very important that you approach a bank which you do not owe money too. In addition it must not be part of the same Banking Group. The Set Off rules still apply between Banks within the same group.
Nationwide & HSBC including First Direct are known to be reluctant to keep accounts open for people who start an IVA. As such these should be avoided when choosing your new bank even if you do not owe them money.
Should you pay for a Managed Bank Account?
Some IVA providers will offer you what is known a Managed Bank Account. This enables the money you need to pay your priority bills such as your mortgage, utilities and IVA payment to be ring fenced as soon as your income is paid.
In this way you know you will never spend too much on housekeeping, clothing and other variable expenses. There will always be the money set aside to ensure that your priority bills will are paid.
However the downside of this type of facility is that it normally comes with a cost. Generally speaking you will be charged £15-£20 a month for a Managed Account.
Most people who start an IVA are able to control their expenditure perfectly well using a standard bank account. There is no need to pay for this facility unless you struggle to manage your spending.
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