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Do you have to open a new bank account if you start a DMP

Do you have to open a new bank account if you start a DMP

You are allowed to have a bank account if you are in a debt management plan. However, you will usually have to open a new account if you owe money to your bank.

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Can you keep using your old bank account if you start a Debt Management Plan?

When you start a debt management plan (DMP), you will need to think about your bank account.

Whether or not you can keep using it depends on whether you include any debt you owe the bank in the Plan. If you do, you will normally have to stop using the account.

The reason for this is the banking set off rule. Once your DMP starts, it allows the bank to simply take money from your account without your permission and pay debt in the Plan which is owed to them.

Clearly this can’t be allowed to happen as it would leave you short of cash. The only way to avoid it is to stop using the account and open a new one.

If your bank is not included in your DMP, you should be able to continue to use your account as normal. The set off rule only applies if debt owed to your bank is included.

What type of account should you open if you need to?

If you need to open a new bank account, your options will depend on the current state if your credit rating.

If your credit rating is still good you can open a normal current account. However, if it is already poor, you will need to apply for a basic account. Basic bank accounts are available for people with poor credit ratings.

Most banks offer basic bank accounts for free. You will all the facilities you need such as a debt card and internet banking. However you just won’t be able to apply for any form of credit such as an overdraft or credit card.

When choosing which bank to go to for your basic account, really the only rule is try and avoid any that are members of the same group. It is possible that banks within the same group could apply the set off rule. So if you owe money to Lloyds you should avoid opening your new bank account with Halifax or Bank of Scotland as they are all in the same group.

Some basic accounts which are easy to open on line include the Co-Op Cash Minder account. Also the standard account provided by Monzo and Starling.

Can you use your partners account?

You don’t have to have your own bank account to start a debt management plan. Instead of opening a new one of your own, you can use your partner’s account.

If you are already using their account you can continue to do so.

You just need to update the account details with your employer and any other organisation that pays you money. Given you give your authority for your money to be paid there, it will not matter to them who’s name the account is in.

Where your account is in joint names with your partner, you can continue to use this as long as you are not including other debts you owe to the same bank in your DMP. If you are, you will need to take your name off the account.

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    2 thoughts on “Do you have to open a new bank account if you start a DMP

    1. Suzanne W says:

      Hi I have just set up a debt management plan and want to know if I can still use overdraft facility on bank account?

      1. James Falla says:

        Hi Suzanne

        In theory, there is nothing to stop you using credit while you are in a debt management plan. As such if you still have an overdraft facility with your bank which you are able to use, you could do so. However I would caution against doing this unless you have a real emergency.

        The problem is always going to be how will you repay the new debt you take on. If you can do this by doing extra overtime over a month or two then ok. But if not, the interest charged on the overdraft facility will be very high and you might end up struggling with both this and your DMP payment…..

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