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.
Included in this article:
- 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?
Want help to start an IVA? Give us a call (0800 077 6180) or complete the form below to speak to one of our experts
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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What happens if someone pays money into my bank account that has an iva ..
Hi Sarah
You are allowed to have a bank account when you are in an IVA. If someone pays you money into the account you are using for your day to day banking, it is yours to keep.
That said, if you are talking about an account with an overdraft that was included in the IVA, that is a different matter.
In those circumstances, I believe the bank should still let you access the money and withdraw it. However, they could try to argue they can keep it to set off against the debt you owe them.
If they are digging their heels in and not letting you withdraw the funds, you will need to speak to your IVA company and see if they can help you put pressure on the bank.
I do not owe my bank any money , if i set up an iva would this effect my bank account or ability to get car insurance etc
Hi Rachelle
As discussed in the article above, if you don’t owe your bank money, you don’t need to worry about your account. It will remain open during your IVA and you will be able to continue using it.
It should not be a problem to get car insurance during the Arrangement either. Non of my client’s who I work with regarding their IVAs have ever mentioned difficulties with this.