If you have debts with a bank or building society, in some exceptional cases, they can use money paid into your current account to cover missed payments on other accounts. This is the ‘right of set-off’. It can also be called the ‘right of offset’ or ‘combination of accounts’.
Your bank can take your money to pay itself
In practice, it’s very rare for banks to do this; but this is why we often require clients to open a new bank account when applying for an Individual Voluntary Arrangement
Why you need a fresh bank account when entering a debt repayment plan
If you owe money to the bank your wages are paid through, we are not able to negotiate reduced repayments. If one creditor has the power to take whatever is due to them, regardless of the client’s ability to pay, then that puts them at an advantage over the others.
A rule governing debt management and IVAs is that all creditors are treated equally.
Therefore, when entering an IVA or debt management plan, if one of your creditors is your bank, it is essential you open a new bank account as a safe place for your money. This puts you back in control.
When you do this, your old account is closed, and any overdraft becomes a debt in your debt management plan or IVA.
How To Get A New Bank Account
Basic bank accounts
If you have poor credit, a basic bank account is the best option. You don’t get a cheque book nor any credit facilities; other than that basic accounts are mostly same as regular current accounts.
Many financial brands are part of the same group; for example, Lloyds Banking Group includes Lloyds Bank, Bank of Scotland and the Halifax. If you’ve credit and debt at associated companies in the same group the right to offset can be extended amongst them. So, if you have a credit card with the Halifax and a current account (with or without an overdraft) with Lloyds, you will need a new current account.
All banks must provide basic bank accounts.
For More information see Money Advice Service (MAS) guide to basic bank accounts.
Opening a bank account
The Money Advice Service (MAS) has produced a video guide to opening a bank account.