You may have to change your bank account if you start an IVA. It will depend on whether you owe the bank money or not.
- The Affect of an IVA on your Bank Account
- What if you have a Joint Account?
- How to get a Bank Account for use during an IVA
- The best time to open a new Account
The Affect of an IVA on your Bank Account
If you do not owe your bank money you will not need to change your account before starting an IVA. They will not be told about the Arrangement and the account will remain open.
However if you do owe them any money and you plan to include this debt in your IVA you will have to open a new account.
The reason for this is a banking rule known as Set Off. This allows the bank to take money from your account and use it to pay any other account with them which is arrears. If you include your bank debt in an IVA Set Off is likely to happen.
The only way to avoid Set Off is to open a new account with a different bank. The rule does not apply between different banking groups.
What if you have a Joint Account?
If your bank account is in joint names the Set Off rule still applies. The debts with the bank added to the IVA may only be in your name. However cash can still be taken from the joint account to pay these.
If money is paid into a joint account the bank cannot ring fence it as paid in by one or other party. It is accessible by both account holders and can be used by the bank to pay either’s debts.
Given this the only way to protect the joint account holder is to take your name off the account before starting your IVA. You then open a new account in your name with a different bank.
If your account is overdrawn you will not be able to take your name off it until the outstanding overdraft is paid.
How to get a Bank Account for use during an IVA
If you need to open a new bank account the first thing to do is choose the Bank to go to. Clearly you need to go to a bank where you do not owe money.
Different banks may be part of the same Banking Group. Make sure you do not chose a bank which is part of the same Group as the one which you owe money to.
If your credit rating is currently good you can apply for a normal current account. You may be offered credit facilities such as an overdraft. It is best not to take these if you are planning to start an IVA.
If your credit rating is already bad do not panic. You will be able to open a Basic Bank Account. Many banks offer these accounts for free. They come with internet banking and a debit card but do not offer credit facilities.
If you need to open a Basic Bank Account IVA Expert recommends the Co-Op Cash Minder. If you owe money to Co-Op please get in touch for more advice.
The best time to open a new Bank Account
It is best to open your new bank account at the beginning of the IVA application process. This way the account will be open before the Arrangement is in place.
You will then have plenty of time to change your bank details with anyone who pays you money. Any payments from your old account which you need to maintain can also be transferred.
You may decide to stop paying your creditors before your IVA is accepted. If so you simply cancel the associated direct debits from your old account. However if you want to keep paying them you should do this from your new account.
It is not usually possible to cancel a payment from your old account towards a loan owed to that bank. They will continue to draw this. If your overdraft increases as a result don’t worry. The debt will be included in your IVA.