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What happens to my Bank Account in an IVA

What happens to my Bank Account in an IVA

What happens to my Bank Account in an IVA

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.

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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 the Arrangement.

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.

Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.

When to open a new account

Given you need to open a new account to avoid Set Off it is best to do so as soon as possible. There is no need to wait until your IVA has started.

You can use your new account straight away. Make sure you 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 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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    15 thoughts on “What happens to my Bank Account in an IVA

    1. Paul says:

      Hi

      I am in the process of going through IVA. I have a TSB basic account without OD but I owe money on a TSB credit card. Am I right in thinking the credit card side cannot just take money from my basic current account without permission? I do not want to have to change the bank account.

      Your advice would be appreciated

      1. James Falla says:

        Hi Paul

        If you owe money to TSB in the form of a credit card which you plan to include in an IVA then as discussed in the article above my recommendation is that you should open a new bank account with another bank.

        The reason for this is the banking right of set off. This means that if you own a bank money in one account (such as a credit card) which you don’t pay because of your IVA they can take money from a different account (such as your current account) to repay the debt without your authorisation.

        Now it is possible that TSB will play fair and once they know you are in an IVA they will not try to take funds you deposit into your current account. However there is no guarantee of this. The only way you can be 100% sure your money will be safe is to open a new account with a different bank before you start your IVA and use that going forward.

    2. Scott says:

      Hi,

      I have recently started an IVA. As I had an overdraft with Halifax I have had to open a new account with Santander. However, we have had to postpone our wedding and are receiving refunds, some of which will automatically be paid into my old Halifax account. Will Halifax bounce these payments back to the company refunding them. Or will Halifax take the payment as I now have no access to the account.

      Many thanks for any help

      Scott

      1. James Falla says:

        Hi Scott

        Normally your account with Halifax will remain open in a sense that payments into it can still be received. As such I suspect that these refunds will make their way into that account. If this happens then you will not be able to get your hands on the cash I am afraid.

        One of two things will happen. Halifax will keep the funds under the set off rule. Alternatively they will forward them to your IVA company who will then treat them as a windfall and pay them into your IVA.

    3. Megan says:

      Hi, me and my partner are looking to set up a basic joint account. His weekly wages will be paid into this but he has an IVA. Will this be possible still? Also will this affect me and my credit score in opening a joint account? Thanks

      1. James Falla says:

        Hi Megan

        Basic bank accounts are offered to people who have a poor credit rating. As such your partner should have no problem opening a new basic account if he is in an IVA. You would need to check with the bank you choose, but as far as I am aware I think the account could be joint with you.

        If you do get a joint account you don’t need to worry. Your partner’s IVA will not have any effect on your credit file.

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