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Your Bank Account and a Debt Management Plan

Your Bank Account and a Debt Management Plan

Your bank account can be affected by a debt management plan. If you owe money to the bank, you will probably have to open a new account elsewhere before starting the Plan. 

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Can you continue to use your Bank Account if you start a DMP?

You will be able to keep using your bank account as long as you do not owe them money. If you have a debt with them and you intend to include this your debt management plan (DMP), you will have to stop using the account.

The reason for this is the banking set off rule. This rule allows a bank to take money from your account to pay other accounts you owe them (if the account is in arrears). They can do this without your agreement. The only way to avoid set off is by banking somewhere else and paying no further funds into your old account.

If you do not owe your bank any money or do not intend to include any debt you owe them in your DMP, you will be able to continue to use your account. They will not find out about the Plan and even if they did it is unlikely they would care.

To protect against set off you will need to open a new account with a bank unrelated to any of the debts included in your debt management plan.

How do you open a new Account if you need one?

Opening a new bank account for use during a debt management plan should not be difficult. First, you have to decide what type of account you need to apply for. This will depend on the status of your credit rating.

If your credit rating is poor you will need to apply for a basic account. Most high street banks offer these for free. They come with all the normal facilities such as a debit card and internet banking. However no credit check is required and no credit is offered.

You then need to chose which bank to open your new account with. Ideally you should go to one which is unrelated to any of the debts you owe. Remember some banks may be part of the same group. For example if you have debts with Lloyds, you should avoid opening a new account with Halifax or Bank of Scotland.

If your credit rating is good, you can apply for a normal current account. However it is best to refuse any credit facilities you are offered.

What happens to a joint account if I start a Debt Management Plan?

You may have a joint bank account with someone else. In this situation whether you continue to use it during your debt management plan will depend on whether you owe the bank money. 

Where you don’t owe them anything or you are not intending to include debt owed to them in your Plan, you can continue to use the account. If you do owe them money and intend to include this in your Plan, you need to protect the account from the set off rule.

The only way to protect the account is take your name off it. You can do this easily as long as there is no outstanding overdraft. If there is an overdraft this will normally have to be repaid in full before your name can be taken off.

You can open a new account in your name to use instead of the joint account if you wish. This can be done at any time.

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