Using A Bank Account During Your IVA

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You can continue to use a normal bank account during an IVA. It’s possible to keep convenient features like a debit card and internet banking. Before your IVA begins, you may need to switch your account. Staying with your current bank could turn out to be risky or costly. There are two main reasons why switching your account might be important:


Reason 1 – Bank Account Gets Frozen or Closed


Your existing bank could freeze your account if you enter an IVA. Banks monitor the public insolvency registers to identify customer insolvencies. Your account could get frozen if you owe your bank money. This debt could be an overdraft, credit card, or a loan provided by the same bank. If you bank account gets frozen, you’ll be unable to access your cash to pay bills and expenses.


Your bank account could also get frozen if there’s a credit balance in the account. The bank may protect this cash in case they need to hand it over to your IVA supervisor. Your supervisor may persuade the bank to unfreeze your account, though this may not be immediate.


Banks could also choose to close your account down altogether. This is most likely if you owe the same bank money, or if you have other open credit facilities held with them. Following a bank account closure, you’ll be severely inconvenienced until you can get a new bank account open. It can take several days before a new account can be opened and become operational.


Reason 2 – “Setting-Off” Your Money


Bank “set-off” is where they take cash from one account to repay another. For example, you could have a current account and bank loan with the same bank. You cannot afford to pay the bank loan and decide to start an IVA. You stop paying the bank loan while the IVA is being arranged. In this situation, your bank could take cash from your current account to pay into your loan account. This act of moving your money between accounts is known as “setting-off”.


The risk of set-off is that you’re left without cash to pay your important bills. You could be left without enough money to cover food shopping or your transport costs. The way to avoid set-off is to move your current account to a different bank before your IVA begins. Move it to a bank that you don’t owe money and where you have no open credit facilities.


Choosing Your New Bank Account


Identify a bank that you don’t owe any money. Review their website to identify the basic account that they provide. These basic accounts aren’t always well promoted, so you may need to dig around their website to identify it.


A basic account may sound unattractive, but they’re usually perfectly functional and usable.  You’ll usually receive a debit card and access to online and mobile banking. You can arrange standing orders and direct debits to pay household bills. There’s usually no monthly fee to pay. You won’t get an overdraft and you’re unlikely to get a chequebook.


Check the small print on the website about your eligibility for an account. It should tell you whether you’ll remain eligible for the account if you enter an IVA. This reduces the risk that your bank account gets closed or frozen in the future.


Our debt advisers can help you find a suitable bank account and answer general IVA questions. This debt advisory service is friendly, expert, and confidential. To get guidance today, please contact us.


Service Ratings and Basic Account Availability


It’s important to consider the different service levels offered by banks. The consumer website Which? provides customer-service ranking based upon surveys of bank customers. You can visit the updated March 2020 report here.


At the time of writing, banks with a decent rating and a basic account include:


• Nationwide Building Society - FlexBasic Account

• The Co-operative Bank - Cashminder Account

• Barclays Bank - Basic Current Account


Opening Your New Bank Account


Switching bank accounts is much easier than it used to be. Most banks operate an online application process. Provided you pass an electronic ID check, there should be no need to visit a branch with ID documents. An online application is usually the fastest way to get a new bank account open.


If you do visit a local bank branch, watch out for staff trying to sell you upgraded accounts. There’s usually a monthly fee to pay for upgraded accounts. These accounts are also unlikely to be secure if you’re in an IVA.


The “current account switching guarantee” makes switching banks much easier. Your old and new banks can transfer your direct debits and standing orders. This should happen within just one week. The switching guarantee is offered by 40 UK banks and building societies making it widely available. It is available for the Nationwide, Co-operative Bank, and Barclays Bank basic accounts we identify above.


You’ll need to provide your new bank account details to organisations that pay you money. This could include your employer, benefits provider(s), or pension provider.


Move Your Account Balance to Your New Account


If there’s cash in your old bank account, transfer the funds new account. This prevents your old bank capturing your money using a “set-off” process.


Joint Accounts


It’s fine to use a joint bank account during an IVA. Using a joint account does create a link between each of your credit files. You will be “financially associated” with each other. This isn’t really an issue if you’re both entering an IVA. If the other account holder wants to protect their good credit access, it’s better to each operate your own account.


Getting IVA Advice


If you’re considering starting an IVA, please get in touch. Our debt advisers can help you find a suitable bank account and answer your other IVA questions. Our advice service is friendly, expert, and confidential.



Author: Andrew Graveson

Qualified Debt Adviser & IVA-Guide.co.uk Founder


Page Last Updated: 21/04/2020



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