Further more, they do not need to seek permission from you, the account holder, before they exercise this right. As a result, if you enter into an IVA and do not move your account to another bank, your bank are within their rights to withdraw funds from your current account and use it to repay money owed to a loan that's included in your IVA.
Furthermore, your bank will prioritise themselves and if insufficient funds remain in your account to meet your ongoing Direct Debits or Standing Orders as they fall due they will charge you fees for returned payments and unauthorised borrowing.
So, for your own protection, it's advisable that you open a new basic bank account with a neutral creditor before you enter an IVA.
You should give serious consideration to moving to a new bank, even if you have no credit agreements with your existing provider. If you hold a standard current account, and your existing bank becomes aware of your IVA some time in the future, they will probably give you as little as 30 days notice to close your current account down and remove your banking facilities. Your new bank account must not have any credit facility attached to it. There should be no overdraft, no cheque book and no credit card attached to the account.
This type of account is called a 'basic bank account' although, as shown in the table below, each provider calls their version of a basic account by a different name. Most basic accounts do provide internet banking and a debit card, which allows you to spend money electronically through cash points and over the internet, and all basic bank accounts provide Standing Order and Direct Debit facilities too.
Once opened, the day to day differences between a current account and a basic account are minimal. The table below shows which banks and building societies offer basic bank accounts and the name they call their version of the basic account. For more information on any account named above visit the website of the provider. Full terms and conditions will be available there, along with details of the application process.
The bank may protect this cash in case they need to hand it over to your IVA supervisor. Your supervisor may persuade the bank to unfreeze your account, though this may not be immediate. Banks could also choose to close your account down altogether.
This is most likely if you owe the same bank money, or if you have other open credit facilities held with them. It can take several days before a new account can be opened and become operational.
For example, you could have a current account and bank loan with the same bank. You cannot afford to pay the bank loan and decide to start an IVA.
You stop paying the bank loan while the IVA is being arranged. In this situation, your bank could take cash from your current account to pay into your loan account. You could be left without enough money to cover food shopping or your transport costs. The way to avoid set-off is to move your current account to a different bank before your IVA begins. Review their website to identify the basic account that they provide. You can arrange standing orders and direct debits to pay household bills.
Check the small print on the website about your eligibility for an account. This reduces the risk that your bank account gets closed or frozen in the future. Our debt advisers can help you find a suitable bank account and answer general IVA questions. If you're getting your state pension, it will be taken into account when you work out how much you can afford to pay into an IVA. If you receive an income from a personal or occupational pension, it will be taken into account when you work out how much you can afford to pay into an IVA.
If you receive a lump sum as part of a personal pension, you may need to agree to pay this into your IVA. If you are still paying money into your personal pension, creditors may ask you to stop paying into the pension and use the money to pay them instead. You would have to do this for the length of the IVA, usually five years. However, IVAs are flexible and if it's vital you continue to pay into your pension, it may be possible to compromise.
Your insolvency practitioner can advise you about this. If you start to take money from your pension pot during the term of the IVA, this will count as income and you may have to pay it into the IVA. Your insolvency practitioner will advise you on this. Apply for the icount current account with prepaid card today.
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