Living on a debt solution

Moving your bank account when you start a debt solution

Posted 18 August 2016

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Do you need to move your account to a new provider? Find out here.

Debt solutions can be really helpful if you’re looking to get debt free or back in control of your borrowing. But that doesn’t mean their effects are all positive – there are some things you’ll need to think about before you start any solution.

If you’re starting a debt solution, you might be wondering if you’ll need to open a new bank account. Will your bank close down your existing account when they hear about your debt solution or can you continue to use the account as normal? Don’t worry – we’ve got the answers to all of your questions on bank accounts and debt solutions.


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Do you need to move your account?

You don’t need to worry that you won’t be able to get an account if you’re on a debt solution. It’s really important that you can keep your money safe so you’ll always be able to open some sort of account.

But in some circumstances, you might need to open a new current account with a new provider. This is more likely to happen if you’re entering an insolvency solution like bankruptcy or an Individual Voluntary Arrangement (IVA). Some bank accounts aren’t suitable for someone who is insolvent so if you start one of these solutions, they could close your account down.

If your account comes with an overdraft, this counts as a form of credit. So if you’re on an IVA, for example, you can’t take out any credit without the permission of your Insolvency Practitioner (IP). This would include an overdraft, which is why you might need to close your account and open a new one that doesn’t have an overdraft facility available.

What is the right of set off?

And insolvency isn’t the only reason why you might need to move your account when you start a debt solution. If you owe money to your bank and you fall behind with your repayments, your bank could take money from your account to cover this. This is the ‘right of set off’ and it’s what can happen if you take out a loan or credit card with your bank and then you don’t pay it back.

So if you start a Debt Management Plan (DMP) while you owe money to your bank, you’ll no longer be making your full monthly repayments as you agreed when you first took out credit. As you’ll make reduced payments every month instead under the plan, your bank could just take the money directly from your account – and this would leave you short for your essential bills and for your DMP payment. Although this is rare, it can be a good idea to open a new account elsewhere to have your income paid into. Your debt with your old bank will just be paid off over the life of your DMP.

What accounts are suitable for you?

Not all accounts will block you if you’re insolvent. As we already said, it’s really important that you have some form of account so you can pay bills out of it and get your wages paid in.

One option if you’re on a debt solution is a basic bank account. You can get one of these accounts from most of the major high-street banks and they offer a lot of the same features as traditional bank accounts – getting your wages paid in and paying bills out. Most basic bank accounts also let you set up Direct Debits and give you a debit card to withdraw money from ATMs and to spend in shops and online.

From this year, nine basic bank accounts are completely fee-free. This means that even if a transaction fails – if you try to pay for something and there’s not enough money in the account, for example – you won’t have any charges to pay. There are also alternative accounts available if you want extra help with your budgeting, some of which have fees payable.

If you’re looking for advice about how to cope when you start a debt solution, you can get in touch with our advisors using any of the options to the left. You can also get free and impartial support from the Money Advice Service.


by Emily Bancroft

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