22nd October 2013
If you going to start an IVA (individual voluntary arrangement) the chances are that you’ll need to get a new bank account. Switching bank accounts has traditionally been a difficult business. In this article we review whether the new Switch Guarantee has removed this annoying obstacle from the path of dealing effectively and quickly with your debts.
The majority of people that are embarking upon an IVA owe their current bank account provider money. As all debts must usually be included in an IVA it’s likely that the bank will be contacted about the process fairly early in the set-up period.
Banks tend to take two types of action in such circumstances once they become aware of the set-up of an IVA. Firstly they may freeze your bank account leaving you unable to access your cash or pay your bills. Secondly they may exercise their set-off rights. This is where they remove money from your current account (that you probably need for other purposes) to set against the debts that you owe them (perhaps a credit card, bank loan or overdraft for example).
Switching accounts has typically been a time-consuming process. Timing the changeover of salary (and other sources of income) to coincide with the changeover of payments (standing orders and direct debits) isn’t easy.
It’s expected that the Switch Guarantee will remove some of the hassle associated with this process. The whole process should not take longer than a week now. There is a facility for the automatic redirection of payments made into your old account for thirteen months but, at this stage, it’s unclear whether the old bank would still have an opportunity to hold onto the cash using their set-off rights.
Of course this new system wasn’t set up with the interests of those entering into an IVA in mind. The hope is that by making it easier for everyone to switch bank accounts there will be more pressure upon banks to offer better value and service to their existing clients. It is however a welcome additional benefit to consumers that the Switch Guarantee will make it quicker and simpler for those starting an IVA to complete this important part of the process.
For more information about banks that you may wish to consider switching your account to before an IVA please visit our bank accounts summary page. It includes a number of suggestions about banks worthy of consideration.