Most people maintain a current account into which their wages or salaries are often paid by their employer via BACS or by other such means.
The current account is often also used for direct debit or standing order payments to creditors. This ensures 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, Sky and any number of such regular bills as well as regular repayments on credit card accounts or other unsecured loans.
Many current accounts are checking accounts enabling people to make payments by cheque for one-off bills or for various purchases and they may also be furnished with cheque cards and/or debit cards. These are some of the most convenient benefits of having a current account. The convenience is often enhanced when the account has an approved overdraft facility as many current accounts do. People can manage their day to day spending in a more controlled and flexible fashion when they use their overdraft facility sensibly. It means that when the account is overdrawn no penalties are incurred other than the agreed interest rates and fees, provided the agreed overdraft limit is not exceeded.
If you enter into an IVA, you will be required to stop using all forms of credit except with the express permission of your supervisor. If your IVA is approved by your creditors, you will be expected to cut up any credit cards or store cards you may have. Furthermore, you will not be permitted to obtain any new credit cards or store cards during the term of your IVA, which is frequently of five years duration. Breaching this requirement will almost certainly lead to the failure of your IVA.
The exception is that with the permission of your creditors and of the supervisor of your IVA, who will be an IP, you may be permitted to use a limited amount of credit in regard to payment for utilities for example. You will also be permitted to hold a current account provided that no overdraft facility is available on the account. However, 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.
Of course 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 provided you have no liabilities to your existing service provider on other accounts or credit cards. If you do, you will be advised by your IP to close your existing current account and to open a new one with a service provider with whom you have no liabilities. You will 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 your new current account provider. You will set up new direct debit mandates for only essential payments such as your mortgage, car HP and utilities. You will cease making payments on your 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 with no overdraft, taken out from a service provider with whom you have no other liabilities. Remember, some creditors have associate companies.
Your IP will 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.