You can have a bank account during an IVA. However you may have to open a new one before starting the Arrangement.
- Can you have a Bank Account during an IVA
- Will you have to open a new Account?
- How to open a new Account before starting
- What happens to a joint Bank Account?
Can you have a Bank Account during an IVA?
There is no reason why you should not have a bank account if you are in an IVA. In fact you might struggle without one. The regular payments you make will normally have to be paid via your account.
Your payments could come from someone else. However it is generally best that you have one of your own which you can control and manage.
You remain in control of your finances. Your income is paid into your account and you control the standing orders and direct debits for all the bills you pay. Your money is not managed by your Insolvency Practitioner.
You can make your IVA payments from someone else’s bank account. However this will be inconvenient. In addition you will not have your own debit card.
Will you have to open a new Bank Account?
If your bank is one of your creditors and you plan to include them in your IVA you will need to open a new account. The reason for this is the banking Set Off rule.
Set Off allows a your bank to help themselves to money in your bank account if you have other debts with them which you do not pay.
To protect your monthly income from set off you need to open a new account with a different bank to whom you owe nothing. The set off rule cannot be applied between different banks from different banking groups.
If you do not own money to your bank then you should be able to continue using your account with them throughout your IVA.
How to open a new Bank Account before starting an IVA
It is relatively easy to open a new bank account before starting an IVA if you need to. However you first have to decide which type of account to apply for. This will depend on the status of your credit rating.
If you have already missed payments and it is poor you will be restricted to applying for a basic account. Most banks provide these for free. They give you internet banking and a debit card. However they do not offer credit facilities.
If you are up to date with your repayments your credit rating is likely to be good. As such you can apply for a standard current account with your chosen bank if you wish. However you should not accept an overdraft or credit card.
To avoid Set Off open your new account with a bank that you do not owe money to. Be careful to chose one which is not part of the same group as your old bank.
What happens to a Joint Bank Account if you start an IVA?
The issues surrounding joint bank accounts are similar to those where the account is just in your name. If you are including the bank in your IVA they can apply the set off rule to the joint account.
As such if the bank is one of your creditors you should take your name off any joint account before making your application. The other account holder can then continue using it without risk.
If there is an outstanding overdraft it will have to be paid off before you can remove your name. Alternatively you could include the overdraft debt in your IVA. However the other account holder will remain liable to pay it.
If your joint overdraft is large you could consider starting a Joint IVA.
Should you use a Managed Bank Account during your IVA?
Some IVA companies provide what is known as a Managed Bank Account. You will always be able to open one of these accounts if you have a poor credit rating.
The advantage is that the account enables you to split your income out into different virtual accounts. One for bill payments and the other for everyday expenses. This can be useful if you are not good at managing your money.
However unlike most basic accounts provided by highstreet banks managed accounts are not free. A monthly charge of approcimately £15 is normally levied to keep them open.
If you have a poor credit rating there is no need to pay for a Managed Bank Account. There are many banks that will offer you a basic account for free.