When you start thinking about an IVA, one of the first things that crosses your mind will be what do I do about my bank account. Will I be able to keep it? Will I be asked to change it. How difficult will changing it be?

Can I have a Bank Account in an IVA?

Actually, the answer to this question is pretty straight forward. When you enter into an IVA, absolutely you can run your own bank account no problem. In fact it is difficult to do an IVA without one because you will need to make regular monthly payments and these normally come directly from your own bank account.

Can I keep the Account I use now?

You will normally be able to keep your account if you do not owe the bank any money. For example, if you bank with Barclays and all your creditors are with other banks, there will be no need to change you account. If you do owe your current bank money (perhaps in the form of a loan, credit card or significant overdraft) then it is likely that you will have to change the account.

Choosing a New Bank

The first thing to do will be to choose the bank. You should go somewhere where you do not already owe any money. Make sure you choose a bank which does not have any connections with your creditors. For example, it is no good opening a new account with Halifax if you owe money to Bank of Scotland as Bank of Scotland own Halifax.

I have found in the past that Halifax, Nationwide and Abbey have all been very helpful particularly if you are looking for a Card Cash Account (see below). More recently, Barclays, NatWest and Bank of Scotland have also been happy to help IVA clients I have worked with.

Current Account v Card Cash

Once you have chosen the bank to speak to, be aware that there are two different accounts. The standard Current Account and the simpler Card Cash. The type of account you choose will depend on your credit history.

If your credit history is currently fine (i.e. you have not missed any monthly creditor repayments), then you will be able to apply for a standard current account with a cheque book and debt card. I suggest however, you decline any offer of an overdraft facility or new credit card. When you are in an IVA, using these lines of credit may mean you breach the terms of the IVA.

If your credit history is already poor, you will need to apply for a card cash account. This is a simple bank account with no credit facilities. There will be no cheque book and normally no debit card. Just a cash card with which you can take out cash from the bank’s ATM machines. You will be able to have your wages paid into this type of account and set up direct debits and standing orders.

Having no debt card can be inconvienient. However, if you feel you can not live without one, you can now apply for a Pre-Paid Debit Card facility. You can get a prepay mastercard from www.mycashplus.co.uk. It costs around 16 pounds initially and 5 pounds per month to use. There is also a prepay maestro card available from www.extremecred.com their card is nine pounds, but you need to purchase online with another debit card, so someone would have to do this for you.

If you enter into an an IVA, this is registered on your credit file. Normally, an IVA will last for a maximum of 5 years. After the IVA is completed, your debts are then called “Satisfied”. You will receive a certificate of satisfaction from your insolvency Practitioner. The record of your IVA will continue to remain on your credit file for 1 additional year (a total of 6 years from the first day of the IVA). This means that if your IVA runs for only 4 years, the record on your credit file will remain for a further 2 years.

While your IVA is running, you must not take any credit without the prior knowledge and agreement of your insolvency practitioner. It is most unlikely that your IP will agree to you taking credit unless this is for the benefit of your creditors (for example re-mortgaging your house to release a lump sum for your creditors). If your IP does agree that you can take credit, you should be aware that your credit rating will have been effected by your IVA and so you will probably have to get specialist lending advice. 

After your IVA is completed, the record of your IVA will remain on your credit file for 6 years from the date your IVA was accepted. This means that it is possible that you will continue to be refused credit until this time has passed. In order to minimise the problems, once your IVA is finished, you should send a copy of your certificate of satisfaction to both of the credit agencies (Experian and Equifax). They will then mark against the IVA record that it has been satisfied. It will then be down to the individual lender to decide whether they want to lend to you or not. Generally, you will be able to take a mortgage with little problem. However, you might have to get advice from a specialist broker and you might not bet the best interest rates on the high street although competitive rates are generally available.Your credit file will only truly be back to normal after 6 years when the record is taken off the file completely. This will happen automatically.

This may all sound like doom and gloom. However, remember, although you will be living on a tight budget while you are in an IVA, after it has completed you will be able to keep 100% of your disposable income. Instead of buying the things you want on credit, you will be used to living without your disposable income and so you could then start saving to buy the things you want for cash!

If you are made redundant from your job, the first thing you must do is let your IP know. Its is likely that they will be able to suspend your monthly IVA payments and give you a payment holiday. This will give you a breathing space while you find a new job. Generally your IP will be able to give you up to 2-3 months break without a great problem.

Once you get a new job, there are three scenarios:

 1 – I found a new job on the same money

This is the ideal scenario. It means that you should be able to start making the same IVA payments again without a problem. All that happens is that the months you have missed will be added to the end of your IVA. In effect, you will make the same number of IVA payments but the ones you missed in the middle will be added to the end.

2 – I found a new job but with less money

If this happens, then the only way you are likely to be able to continue with your IVA is if your payments are reduced. To achieve this, your IP will have to propose a variation of your IVA to your creditors. As long as the variation and reasons for it are reasonable, then very often the creditors will accept the change even if this means that their dividend is reduced. They may of course ask for some additional payments to be added onto the end of your IVA to compensate.                        

3 – I found a new job on more money

If this happens, then you will be able to restart your IVA payments, but you might be asked to increase them. You will not necessarily be asked to hand over the whole of the increase. The additional amount you pay will depend on other factors such as whether as a result of the new job, your have any additional monthly expenses (eg additional travel costs).

This is a question that I am often asked and it is certainly an interesting topic.

If someone’s sole income is derived from benefits then there is no legal reason why they should not be allowed to propose an IVA. If after prudent budgeting, a review of  reasonable expenditures shows that there is a disposable income available, then this could be used as the basis of an IVA proposal.

Despite this situation, an IVA can only be put in place if the proposal is accepted by  creditors. Over the past 12-18 months, many commercial banks have taken the view that it is not morally correct for someone who’s sole income is benefits to carry out an IVA. Their argument is that benefits are means tested and designed to pay for a reasonable cost of living but do not include extra funds for the repayment of debt.

On the face of it, this is a reasonable argument. However, it seems to me that if someone with this type of income has been allowed to borrow in the first place and then gets themselves into difficulties, then surely they should be given the same options as everyone else to resolve the problem. After all, if not IVA, then what? A Debt Management Plan will require monthly payments in the same way as an IVA and so surely if your argument is that benefits money must not be used to pay for debt, then the Debt Management plan is also taboo. This then leads us to assume that those on benefits will be driven to declaring bankruptcy which is surely in no-one’s interest.

My personal view is that IVAs for people who’s sole income is benefits should not be dismissed. However, the discussion is likely to continue.

Note – It is certainly possible for someone to undertake an IVA when only part of their income is derived from benefits (eg a tax credit). Also creditors may consider accepting an IVA if the debtor has a property which they stand to loose in bankruptcy.

Today I have been speaking to someone who has been in an IVA for 2 years. When they started their IVA they were single and owned a flat with some equity. As with many similar IVAs, there was a clause included that stated any available equity from the property would have to be released for the benefit of the creditors in the 4th year of the IVA.

Unfortuanately this person says that they were not aware of this clause. During the last two years, they met a new partner who also had a property. They decided to sell both their properties and combine the proceeds to buy one larger house. They did this without the knowledge or consent of the person’s IP. This has caused huge problems. It turns out that the person had £20,000 of equity in the property which was released and put into the new home. The new mortgage is such that it can not be changed for 5 years. The creditors are now taking the view that the release of this equity has broken the IVA agreement and if £20,000 is not made available the agreement will fail.

This helps illistrate that if you are in an IVA, you must ensure you understand its terms and conditions. Do not change or take on a mortgage without the prior knowledge and concent of your IP. It could have dire consequenses