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Basic bank accounts are available for people who have had credit problems. Learn how they work and why you might need one.
If you’re considering an Individual Voluntary Arrangement (IVA) as a way out of problem debt, you might be wondering how starting this solution will affect the different areas of your life.
Debt Advisory Centre are here to answer all your questions about debt solutions, and today we’re going to look at what happens to your bank account when you start an IVA.
You won’t be left without an account
First of all, don’t be worried that you’ll be left without any account if you start an IVA. In some cases, your current bank account will have to close but you will be able to open a new type of account that will be more appropriate for your circumstances. Let’s look at why this is and how these accounts work.
Your bank may freeze your current account
It is possible that your bank will freeze your current account when they learn about your Individual Voluntary Arrangement (IVA). Some banks don’t allow someone who is insolvent to have an account with them. Added to that, some accounts have something called ‘the right of set-off.’ This means that if you owe them money on a credit card account for example, they have the right to take money out of your current account to cover some or all of this. This doesn’t apply all the time – you should check on the terms and conditions to find out whether it applies to your account.
You’re also not allowed to take out any credit while you’re on an IVA without the permission of your Insolvency Practitioner (IP). Most current accounts come with an overdraft facility, which is a form of credit.
Your IVA will be recorded on your credit history and this will also show up if you try and get a new current account with an overdraft facility.
What are my options?
We all need a bank account nowadays to manage our everyday finances, and of course this doesn’t change because you’re on an Individual Voluntary Arrangement (IVA). There are other types of accounts that allow you to manage your finances in much the same way as you did before, but without the risk of using credit and breaking the rules of your IVA.
They’re called basic bank accounts and they allow you to deposit and withdraw money, have your benefits and wages paid in and pay Direct Debits. You usually have online and telephone banking services with these accounts as well.
Fee-free basic bank accounts
At the start of the year, six major banks started offering fee-free basic bank accounts to people that don’t qualify for any other type of account. These accounts mean that you won’t have to pay anything even if a transaction fails. This could happen if there isn’t enough money in your account to cover a Direct Debit that was supposed to go out, for example. It’s worth remembering that the company who the money was supposed to go to might still charge you if the transaction fails, you just won’t be charged by your bank.
Some basic bank accounts also offer debit cards. Which? has made a list of some of the best basic bank accounts for you to compare.
How does an IVA work?
An Individual Voluntary Arrangement (IVA) is a formal method of solving debt problems. It’s a plan for you to pay less each month towards your debts and normally lasts for five years. After this time, if your circumstances have not improved, the rest of your unsecured debts included on the plan are written off entirely.
There are some rules that you must follow in order for your IVA to complete successfully. One of these rules is that you can’t borrow anything without the permission of your IVA provider. As well as that, an IVA might not be compatible with jobs that require a credit check. You may also have to cut back on some non-essential spending in order to make sure you’re putting everything you can towards your debts.
An IVA will also have a negative effect on your credit history. Because you stop your contractual payments, you are breaking the agreement that you originally signed. This is noted on your credit file for six years from the date that you start your IVA.
The main advantages to this kind of plan are that your payments are lowered to an affordable amount and some of your debt will be written off altogether at the end. Although there are some lifestyle changes associated with this solution, a debt expert will only recommend it if they can see that the pros outweighed the cons in your particular case. If it turns out that an IVA is the best way forward for you, your IVA provider will go through everything it entails including how to switch bank accounts if necessary.
If you want to speak to someone for expert advice, you can get in touch with our advisors today using the options on the left. There may be fees for ongoing services, but the initial advice we give is always free of charge. Or, there is lots of help about debt and money in general on the Money Advice Service.
by Christine WalshBack to blog home