Many of us don’t really regard our current account as being a proper debt in the normal meaning of the word. Over time, we think of our current account as being our friend and almost like a member of our family. We lodge money into it, pay bills from it and withdraw money from it when we need to. If you could love an account this would be the one.
We arrange to have our wages or salaries and benefits paid in to our current account. We use our current account for making direct debit or standing order payments to our creditors on a monthly basis, thus ensuring that payments are made when they are due for a whole plethora of liabilities: mortgage or rent, vehicle HP, utilities such as water, gas and electricity, TV license, house and car insurance, life assurance, council tax and Sky and we make regular repayments on our credit cards, store cards and any other unsecured loans that we may have.
Most current accounts are checking accounts enabling us to make cheque payments for one-off purchases. We also have the use of debit cards together with the ‘cash-back’ option. The convenience of having a current account is enhanced when we also have an approved overdraft facility. Our current account thus enables us to manage our day to day spending in a more controlled and flexible fashion provided we use our overdraft facility sensibly. It means that when the current account is overdrawn, no penalties are incurred other than the interest rates and fees already agreed with the lender, provided we keep within the agreed overdraft limit.
A standard condition of entering into an IVA is that you must stop using all forms of credit except with the express permission of your IVA supervisor. Once your IVA is accepted by your creditors, you are expected to cut up any credit cards, debit cards and store cards that you may have and your are prohibited from obtaining any new credit cards, debit cards or store cards during the term of your IVA, often of five years duration. Breaching this requirement can and almost certainly will lead to the failure of your IVA.
One exception that is allowed is that with the permission of your creditors and of the supervisor of your IVA, who will be an insolvency practitioner or IP, you may be permitted to use a limited amount of credit in regard to payments for utilities, for example. You will also be permitted to hold a current account provided that no overdraft facility is available on the account except that, with the express permission of your supervisor, a nominal overdraft facility of perhaps up to £100 may be permitted. You may retain a debit card and cheque card in respect of a current account which has no overdraft facility and which is not overdrawn.
If you plan to offer proposals to your creditors for an IVA, you can keep your existing current account provided it is not overdrawn and has no overdraft facility and provided that you have no other liabilities to the lender with whom you have the current account. If your existing current account does not comply with these requirements, your IP will advise you to close it and to open a new current account one with another service provider with whom you have no liabilities. Your IP will also be able to suggest alternative service providers who are not associated with your existing current account provider. Indeed even if you are not insolvent now but fear that you may become so some time in the future, you might consider opening and maintaining a clean current account now, given the difficulty in doing so when your credit file begins to be impaired.
You will also be advised to provide your employer with new instructions as to where your wages or salary is to be paid. You will cancel all existing direct debit mandates and standing orders and provide new instructions to the provider of your new current account facility. You will set up new direct debit mandates but only for priority payments such as your mortgage, car HP and utilities. You will cease making payments on all of your other unsecured debts. The timing of these activities is important and it probably should be done well in advance of the circulation of your IVA proposals. Ideally you will now have a new clean current account which has no overdraft and which has been taken out from a service provider with whom you have no other liabilities.