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Does my bank have the 'right to offset' during an IVA?

An IVA (Individual Voluntary Arrangement) could help you deal with your unmanageable unsecured debts by lowering your monthly payments to a level you can afford.

However, if one or more of your unsecured debts are with the same bank that provides your bank account, they may be able to take what you owe them directly from your income. This is called the right to offset.

If you're not sure how an IVA works, there's loads of information on this page.

How would the right to offset affect my IVA?

If you start an IVA and your bank enforces their right to offset, this would mean that they would get much higher proportion of your income than your other lenders. As an IVA is dependent on enough of your lenders agreeing, it could fail if they feel your bank is being given higher payments.

And there's the issue of you being left unable to meet your monthly IVA payments because the bank has only left you enough to deal with your 'essential' costs - like your mortgage, food and bills.

However, there are rules surrounding the right to offset - for example, your bank are only allowed to take what you were meant to have already paid them, and they can't leave you in 'financial distress'.

How can this problem be avoided?

Avoiding the problems associated with your bank's right to offset is simple - move to another bank. Some people have been with the same bank all their lives, and feel loyalty towards it, but this bank also has the right to take money out of your account without your consent if you fail to repay a debt. But if your money and financial arrangements are moved to a totally different bank (that is not owned by the same financial institution), your original bank will be unable to access it.

What kind of bank account should I get?

If you have been struggling with your unsecured debts, your credit rating may be damaged. This means that it might be difficult to get another conventional current account.

For this reason, it's best to get a basic bank account whilst on an IVA. This kind of account can offer many features of 'normal' current accounts - such as a debit card. They will not, however, offer you an overdraft facility. Though this may seem limiting, it is strongly advised that you do not take out any further credit during your IVA. On an IVA you will be expected to make monthly payments of as much as you can realistically afford. Your new overdraft would not be included in your IVA, so you could struggle to repay it.

What else should I know?

An IVA can only help you if you can't see yourself being able to repay your unsecured debt in a realistic timeframe. Once you've completed your IVA (usually after five years) any remaining unsecured debt included in the IVA will be written off.

It has its disadvantages, though - for example it will damage your credit rating for six years. And, if you're a homeowner, you might be asked to release equity in your home in the final year of your IVA.

Before you decide on a debt solution, it's important to seek expert advice. A professional debt adviser would be able to suggest a course of action - whether it's an IVA or a different debt solution such as bankruptcy.

If you'd like to talk to a debt professional about your personal situation, fill in this form and we will call you back.

By Helen Gradwell.

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Subject to eligibility and acceptance. Fees Payable. Debt write off applies to unsecured debts only and on completion of an IVA, alternative solutions may be offered. If your IVA fails, it could lead to Bankruptcy. Your ability to obtain credit will be affected for at least 6 years. Homeowners may be required to release the equity in their property.