Overdrafts and Your IVA, Question by Question
What goes in, why your bank account matters, and what to set up first.
Can overdrafts be included in an IVA?
Yes. An arranged or unarranged overdraft is an unsecured debt, so it can be included in an IVA alongside your credit cards, loans and other borrowing. Once the arrangement is approved, the overdraft is frozen, the bank is bound by it, and any qualifying balance left at the end is written off in the same way as your other debts.
Why do I need to change bank accounts?
Because your overdraft is with your own bank. Banks have what is called a 'right of set-off', which lets them take money from your current account to reduce a debt you owe them, such as an overdraft. If your wages were paid into that account, the bank could swallow them. To avoid this, you move your banking elsewhere before the IVA begins.
What kind of account should I open?
A simple account with a bank you do not owe. Many people open a 'basic bank account', which has no overdraft and no credit checks to worry about, so you can still receive wages or benefits and pay your bills. The key is that it is with a banking group you are not including in your IVA, so there is no risk of set-off.
What happens to the overdraft interest and fees?
They stop. Overdraft fees and interest can quietly add up, but once your IVA is approved, the charges on the included overdraft are frozen. The balance no longer grows, and it is cleared, in part, through your single monthly IVA payment along with your other debts.
How much of an overdraft is written off?
The same way as your other unsecured debts. The overdraft sits alongside your other creditors, you pay what you can afford over the term, and whatever qualifying balance remains at the end is written off. How much that comes to depends on your overall affordability, not on the overdraft specifically.
Will my old account be closed?
Most likely, yes. Once an overdraft is included in an IVA, the bank will usually close or freeze the account, which is another reason to have a new account set up first. Make sure you have moved all your income, direct debits and standing orders across before the IVA starts, so nothing important is missed.
Can I go overdrawn during the IVA?
You should avoid it. New borrowing, including a new overdraft, is restricted during an IVA, and going overdrawn can create fresh debt that is not covered by the arrangement. If your budget is too tight to get through the month, the answer is to speak to your supervisor about reviewing it, not to slip back into the red.
Should I get advice?
Yes. Overdrafts are common and treatable, but the bank-account side of things makes getting the order of steps right important. A free, impartial adviser can guide you through it and tell you honestly whether an IVA, or another route, is the best way to deal with your overdraft and the rest of your debt, with no obligation.
