What Happens To Your Bank Account In An IVA

You are allowed to have a bank account if you have an IVA.

Depending on your circumstances you can either keep using the account you have at the moment or open a new one.

Use this guide to find out the answers to all your questions about bank accounts and an IVA. Need specific advice? Ask us a question online or get in touch today.

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Can you have a bank account if you do an IVA?

Yes. You can definitely have a bank account if you start an IVA.

In fact, if you are in an IVA, it is important that you do have an account.

One of the reasons for this is that you will need it for your income to be paid into (wages or benefits). In addition, you need a bank account so that you can continue to pay all of your regular household bills.

You will also need it to make the regular monthly payment into your IVA.

It’s likely that you will already have a bank account. You may be able to simply continue to use this.

However, more often than not, you will have to stop using your old account you have and open a new one. This will normally be the case if you owe money to the bank where your account is held at the moment.

Is it possible to have a business bank account during an IVA?

If you are self employed you may want to have a separate account for your business transactions.

It is possible to get a business account while you are in an IVA.

There are some banks which will provide business accounts for free. Examples of these are Monzo, Starling and TSB.

There are also business accounts available which charge fees such as Tide. 

What happens if you owe your bank money?

When you start an IVA, if you owe money to the bank you are currently with, you will need to open a new bank account.

Examples of the debts you might owe to your current bank:

• Overdraft
• Outstanding loan
• Credit card balance.

The reason you will need to open a new account is a banking rule known as Set Off. This rule allows your bank to take money from your account without your authorisation. It can then use it to pay other debts you have with them.

In other words, when you include your bank overdraft, loan or credit card debt in your IVA, the bank could apply the Set Off rule and take money from your account to pay themselves.

Where this happens it will leave you short of cash.

The way you protect yourself from the Set Off rule is to open a new account with a different bank. As long as your income is paid into the new account, it will be safe. This is because the rule does not apply between different banking groups.

If you don’t owe any money to the bank you are currently with, you should be able to continue using this account. It will not be affected by your IVA.

How to open a new bank account for an IVA

There are three key steps to consider if you are planning to open a new bank account for an IVA:

1 – Choose a bank

When you choose a bank to open your new account with there is one important thing to consider. That is, it must be a bank that you do not owe any money to.

When deciding, remember that some different banks may be part of the same Banking Group.

For Example:
Lloyds banking Group includes Lloyds, Halifax and Bank of Scotland.

Ideally, you should choose a bank which is NOT part of the same Group as the one which you owe money to.

2 – Decide which type of account to open

There are two different types of bank account. These are known as current accounts and basic accounts.

When should you open a current account
If your credit rating is currently good you can apply for a standard 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.

When to choose a basic account
Where your credit rating is already bad, you will need to choose a basic account. Most banks will open their basic account even if your credit rating is poor.

You can use a basic account just like a normal current account. It will come with internet banking, a debit card and you can set up standing orders and direct debits. The only difference is you will not get credit facilities.

If you need to open a Basic Bank Account, IVA Expert recommends the following banks:

• Co-Op Cash Minder
• Monzo free account
• Starling free account
• Nationwide Flexbasic
• TSB Basic

3 – Plan the best time to open your new account

Generally speaking, you should open your new bank account before you start your IVA. This way the account will be up and running in plenty of time.

You can start using your new account as soon as it is open (even before your IVA starts).

You will need to make sure that all your direct debits and standing orders for household bills that you will have to continue paying are transferred.

Can you continue using a joint bank account during an IVA?

You can definitely use a joint bank account while you are in an IVA. However, the same guidelines apply as with an account in just your name.

If you owe money to the bank, you will likely need to open a new account elsewhere to avoid falling foul of the Set Off rule.

Any debts you include in your IVA may only be in your name. However cash can still be taken from the joint account to pay these if they are with the same bank.

You may be able to take your name off the joint account before starting your IVA. This would then protect the account holder from any setoff actions.

If your joint account is overdrawn you will not be able to take your name off it until the outstanding overdraft is paid.