You can choose to continue using the bank account you already have when entering into an Individual Voluntary Arrangement (IVA).
However, there are a lot of cases in which you may have to set up a new account before entering into an Individual Voluntary Arrangement.
This is because keeping the bank account you currently have during an IVA may be extremely risky. There are a couple of reasons for this.
Why Should I Get a New Bank Account Before Entering into an Individual Voluntary Arrangement?
There are mainly two reasons as to why it’s a very good idea to get a new basic account set up before you enter into an IVA.
Your Bank May Freeze or Close Your Account
If you owe any kind of debt to your bank such as an overdraft, credit card or a loan and you enter into an IVA, there’s a chance they may freeze your account.
Keep in mind that when you enter into an IVA, your name gets into the Individual Insolvency Register. Banks keep a close eye on this and if your name shows up in it, they’ll know you’ve entered into an IVA.
If your bank account gets frozen then you won’t be able to access your cash. This would be extremely troublesome as you may need it for essential expenses and bills.
If you have a credit balance in your bank account, then it could also be frozen. This is because the bank would be protecting this cash in case they need to hand it over to your Insolvency Practitioner.
You can talk to your IP and ask them to persuade the bank to unfreeze your account. While this is definitely possible, it’s not always immediate and you could be inconvenienced for many days or even weeks.
Your bank could also opt to close down your current account entirely. This could happen if you owe them money. You’ll be heavily inconvenienced if they close your account. A new one would take a lot of time to get set up and your IVA would make it difficult for you to set one up as well.
You don’t want to worry about something like this in the middle of your IVA. Hence, I suggest you open a new basic account with a bank you don’t owe any money to. Even if you don’t have any credit agreements, I still suggest you set up a new basic account.
Your Bank can “Set-Off” Your Money
“Setting-off” of money refers to the act of a bank transferring money from one account in order to repay another.
For example, suppose you have a current account with a certain bank and you have a loan with them as well. Now, suppose that you’ve just decided to enter into an IVA and while you’re setting up this IVA, you cease making payments towards your bank loan. In this case, your bank may decide to transfer money from your current account into your loan account in order to pay off your loan.
As you can probably imagine, this can be extremely inconvenient and troublesome. You may need that cash for important bills and expenses. This practice may seem unfair to you but it’s legal under guidelines authorised and regulated by the Financial Conduct Authority.
The best way to avoid “set-off” is to set up a basic account in a different bank to which you don’t owe any money. Be sure to do this before you enter into your IVA.
How Do I Choose my New Bank Account?
You can easily choose a new bank account by identifying which bank you don’t owe any money to and where you have no open credit facilities. Then, you can go to their website and look for details regarding their basic bank accounts.
A basic account may seem like an unattractive option but it will definitely provide you with everything you need to navigate through an Individual Voluntary Arrangement. Basic bank accounts usually come with a debit card as well as access to online and mobile banking.
You can also arrange standing orders as well as direct debits in order to pay utility and households bills.
Always check the fine print in order to get information regarding your eligibility. Some banks don’t allow people with IVAs to have bank accounts with them. Make sure this isn’t the case so yours doesn’t end up getting frozen or closed when you enter into an IVA.
Which Bank Should I Go for?
Here are some great options that you can consider for opening basic bank accounts:
- 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.
All of these options come with a debit card for you to withdraw cash and accept Automated Credit Transfer (ACT) payments. They also don’t have fees for failed payments and all of them let you set up direct debits and standing orders as well.
Most of them can just be set up online except for the Co-operative and Metro Bank.
The Co-operative Bank offers the option of setting it up via post or by visiting a branch. Metro Bank only lets you set up an account by visiting a branch.
Is There Anything I Should Know Before Opening a New Basic Account for My IVA?
There’s honestly not much you need to know as the process of setting up a bank account has been made very simple and convenient in recent years.
Most banks give you the option of completely setting up your account online. All you have to do is pass an electronic ID check and you’ll be able to set it up for most banks.
If you do opt for an account with a bank that requires you to visit one of their branches, be cautious of staff that try to sell you upgraded accounts. Not only do these accounts usually have a monthly fee but they may also get frozen or closed once you enter into an IVA.
Once your account is open, be sure to transfer all of the money you have from your old account into this one. This will ensure you don’t lose anything in case your old account gets frozen or closed.
Can I Have a Savings Account with an IVA?
Yes. Opening a savings account is actually a great idea during an IVA. It will allow you to set cash aside which you can then use to make monthly payments.
Having money stored in a savings account will make you much less tempted to spend it than if you had physical cash lying around in your house.
Your poor credit score will not hinder you in setting up a savings account during your IVA since you would not be trying to borrow any money.
If you’re considering an IVA and have a debt such as credit card debt with your current bank, it’s certainly a good idea to set up a new basic account.
Going through an IVA is a delicate process and having your bank account close down is something that would definitely jeopardise its success.