Bank Account and a Debt Management Plan
Before you start a Debt Management Plan (DMP) to will need to think carefully about your bank account. If you owe money to your current bank and you include this debt in your Plan you will not be able to continue using the account. Having said that you are allowed to have an account in your own name. As such before you start your Plan you may need to open a new one.
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What happens to a Bank Account I already have if I start a Debt Management Plan?
If you have no debts with your bank you will be able to continue to use your account if you start a Debt Management Plan. There is no way that your bank will find out the Plan. Even if they did they will not stop you using your account.
However if you owe money to your bank and you want to include this in your Plan you will have to open a new account. This is because of the banking rule of set off. The rule allows your bank to take money from your current account to pay other accounts you owe them which are in arrears. They can do this without your authorisation.
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 Plan.
How do I open a new Bank Account?
If you follow a few simple guidelines you should not have any difficulty opening a new bank account. The first thing you will need to think about is which bank to approach. The rule is you need to choose a bank which is unrelated to any of the debts you owe.
DM4U Tip: Remember some different banks may still be related to your debts because they members of the same Group. For example if you are currently banking with Lloyds you should avoid opening a new account with Halifax or Bank of Scotland as these banks are all part of the same Group.
The second thing to consider is whether or not you already have a poor credit rating. If you are currently up to date with your debt repayments your credit rating should still be OK. You will therefore be able to apply for a standard current account with your chosen bank.
If you have missed debt repayments then it is likely that your credit rating is already poor. In this situation you can only apply for a simple bank account. This is normally known as a card cash account. It will have the same facilities as a standard current account including a debit card but you will not be offered credit such as an overdraft facility or credit card.
Should I open a Managed Bank Account if I am starting a Debt Management Plan?
Many debt management companies offer a special type of bank account called a managed account. These accounts can always be opened if your credit rating is poor.
Managed bank accounts can be a very good idea if you struggle to manage your money every month. The account gives you the option to split your funds into two different areas. You can set up the account so a certain amount of your income is paid into a seperate area for essential bill payments. This money is therefore always set aside and you will not have to worry about your bills being paid.
DM4U Tip: The downside of the managed bank account is that there is normally a monthly fee to keep the account open. This will be between £10-£15 a month. As such it is generally better to open a card cash account which you can get for free unless you are particularly bad at managing your money.
Can I use a Joint Bank Account if I start a Debt Management Plan?
You may already have a joint bank account with someone else. In this situation whether you continue to use this during your Plan will depend on whether you owe the bank money. If you do not owe them anything or you are not intending to include any debt to them in your Debt Management Plan there is no reason why you should not continue to use the account.
If you do owe money to the bank and you want to include this debt in your Plan then to protect the account from the set off rule you will need to take your name off the account and open another one.
You will not normally be allowed to take your name off a joint bank account if there is an outstanding overdraft facility. Any overdraft will have to be repaid in full before your name can be taken off the account.
Can I use my Partner’s Bank Account if I am in a Debt Management Plan?
There is nothing to stop you using someone else’s bank account if you start a Debt Management Plan. It is possible to have your wages and other income paid into an account which is not in your name. You can also make any payments you need to from this account in the form of standing orders or direct debits.
However it is normally inconvenient to use someone else’s account in the longer term. You will not be able to have a debit card in your own name and so you will have to rely on carrying cash with you to fund your day to day payments. As such opening a new account in your name is generally the best thing to do.
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