Bank Accounts and IVAs: What to Check Before Applying

Are you trying to manage your money during or after an Individual Voluntary Arrangement (IVA)? If your answer is yes, this guide is for you. 

An IVA can affect the bank account you use, especially if you owe that bank money. Check the position with your debt adviser and the bank before the arrangement begins. No particular account is guaranteed to accept every applicant.

In this guide, we’ll cover:

•  Choosing a new bank account before starting an IVA
•  What happens if your bank freezes or closes your account
•  How to write off some debt
•  The things you need to know before opening a new account

Navigating financial difficulties can be challenging, and it’s common to feel unsure about seeking help. In fact, Citizens Advice revealed that 60% of adults facing financial difficulties hesitate to seek assistance.¹

If that’s your case, don’t worry — you’re not alone. We’re here to support you every step of the way.

Why Should I Get a New Bank Account Before Entering an Individual Voluntary Arrangement? 

If your current bank is also a creditor, discuss opening a suitable account separate from those debts. This can help keep wages, benefits and essential payments accessible while the IVA is being arranged.

Your Bank May Freeze or Close Your Account 

A bank may restrict or close an account under its applicable terms or legal duties, but an IVA does not automatically freeze every bank account. Ask the bank and your practitioner how your particular account will be treated.

If your bank account gets frozen, you won’t be able to access your cash. This would be extremely troublesome as you may need it for essential expenses and bills. 

An account in credit can still be affected by a restriction. A positive balance does not by itself guarantee uninterrupted access.

An IVA does not automatically require a bank to hold your money for the insolvency practitioner. The proposal and applicable law determine which assets or balances must be contributed. Disclose your accounts and obtain advice about any restriction or disputed balance.

Your IP can also provide advice on managing your finances during an IVA, addressing important questions such as what happens to your IVA if you lose your job.

If access is restricted, contact the bank promptly and tell your practitioner. Explain any immediate need for food, rent or other essential payments and ask what documents are needed. The practitioner can help clarify the IVA, but cannot guarantee the bank will restore access by a particular date.

Your bank could also opt to close down your current account entirely.

Do not assume closure is inevitable or immediate. Ask about the bank’s policy, any notice requirements and options for a basic account. Allow time to arrange essential incoming and outgoing payments.

If you do not owe your bank money, you may be able to keep the account, depending on its terms. Changing accounts is not automatically necessary for everyone with an IVA; check before disrupting wages, benefits or direct debits.

» TAKE ACTION NOW: Fill out the short debt form

Your Bank can “Set-Off” Your Money 

“Setting-off” of money refers to a bank transferring money from one account to repay another. 

For example, suppose you have a current account with a certain bank and a loan with them. Suppose you’ve just decided to enter an IVA, and while setting up this IVA, you cease making payments towards your bank loan.

Before the IVA is approved, the bank may have a right to use money held with it against a debt due to it, subject to the legal requirements and fair-treatment rules. This is not an unrestricted right to take every balance.

Tell the bank and your adviser if the money is needed for essential living costs or priority debts. If set-off has caused hardship, complain promptly and provide an up-to-date budget.

FCA guidance requires banks to consider the customer’s subsistence needs when using set-off. The Financial Ombudsman Service also considers whether it was used fairly. Once an IVA is approved, the bank must take account of the binding arrangement and applicable insolvency rules; do not assume the pre-IVA position continues unchanged.

Ask your adviser about an account with an appropriate bank separate from the debts. Check linked brands and the actual legal entity rather than relying only on a different trading name. Do this in time to arrange essential payments, while continuing to disclose all balances and assets.

Is There Anything I Should Know Before Opening a New Basic Account for My IVA? 

Compare the account’s eligibility, identification requirements, access methods, fees and payment facilities. Some applications can be completed online; others need additional documents or a branch visit.

You must meet the provider’s eligibility and identity-check requirements. Opening an account is not guaranteed by passing one electronic check. A paid or upgraded account is not automatically more suitable for an IVA.

Before moving money, discuss the account with your adviser or supervisor. Arrange wages, benefits and essential payments through the appropriate account and keep records. Do not move or conceal money to avoid the IVA’s disclosure or contribution requirements.

Here are some tips for managing your bank account while you’re in an IVA:

• Keep track of income and essential spending against the agreed budget.
• Confirm where wages and benefits will be paid before changing the old account.
• Check direct debits, standing orders and balances during the changeover.
• Tell your practitioner about relevant changes and supply requested records.

» TAKE ACTION NOW: Fill out the short debt form

IVA Breakdown

Understanding the basics of an Individual Voluntary Arrangement (IVA) is essential for anyone navigating financial decisions.

To provide clarity on this important solution, I’ve put together a table outlining key IVA elements.

If you want to learn more about IVA and its benefits, be sure to read our specialized guide.

How Do I Choose My New Bank? 

Check both whether the bank is separate from your debts and whether its account meets your practical needs. The absence of a debt with that bank does not by itself establish eligibility.

Then, you can go to their website and look for details regarding their basic bank accounts.

A basic account may provide the essential features you need, but check its restrictions and payment facilities before applying.

Basic bank accounts usually come with a debit card and online and mobile banking access. 

You can arrange standing orders and direct debits to pay utility and household bills, which is important for managing finances during an IVA.

Read the current eligibility criteria and answer insolvency questions accurately. Banks may have different policies for an existing IVA and for opening a particular type of account.

Ask the provider to confirm how an IVA affects the account rather than assuming acceptance prevents all later restrictions.

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Which Bank Should I Go for? 

Although basic bank accounts may lack some of the benefits of regular accounts, they offer a range of features that will help you manage your money during your IVA.

They allow you to receive money (like wages or benefits), pay bills and expenses, and provide online or telephone banking access. These accounts generally do not have an overdraft facility, which can be beneficial in helping to manage spending.

Examples of basic or cash accounts to research include the following. Check current eligibility, features and charges; this is not a ranking or a guarantee of acceptance:

• The FlexBasic account of the Nationwide Building Society.
• The Basic Current Account of Barclays Bank.
• The Cashminder account of the Co-operative Bank.
• The Cash account of Metro Bank. 

Check whether the particular account provides the debit card, cash access and incoming-payment facilities you need.

Check support for standing orders and direct debits, and read the current fee information. Do not assume every basic or cash account has identical features or charges.

Application routes differ. Cashminder applications can be made online; other providers may require additional checks or a branch visit. Use each bank’s current instructions.

For a branch application, check what identification and address evidence to bring and whether an appointment is needed before travelling.

If an application is refused, ask for the reason where the bank can provide it and discuss alternatives with your adviser. Avoid making multiple unnecessary applications for credit facilities.

References

1. StepChange – Credit safety net report