Debt Relief Orders and Bank Accounts

What your bank can do when a DRO is approved

Your bank will usually learn of the DRO within days, through the creditor notification or the Individual Insolvency Register. Its terms generally allow it to freeze the account while it decides what to do, close it and return any credit balance, or remove an overdraft facility. Some banks simply leave the account open.

The risk is highest where the bank is also a creditor. If your overdraft is included in the DRO, the bank cannot take money from your account to repay it, but it has little reason to keep the account running. Even a credit card or loan with the same banking group can trigger a review. Assume your existing account may stop working and plan for it.

Opening a basic bank account before you apply

A basic bank account is a fee-free current account with no overdraft and no cheque book. You get a debit card, can receive wages and benefits, pay by direct debit and standing order, and use online banking. The larger UK banks and building societies must offer them, and a DRO is not in itself a reason to refuse one.

1. List every bank and lender you owe money to

   Include overdrafts, loans and cards, and note which banking groups they belong to. Some brands share an owner, and a group can see across its brands.

2. Open a basic account with a bank you owe nothing to

   Do this before the application is submitted. Once the DRO is approved you must declare it on every application.

3. Move your income into the new account

   Give your employer, the Department for Work and Pensions and anyone else who pays you the new details. Allow time for the change to take effect.

4. Move your essential payments

   Set up new direct debits for rent, council tax, energy, water, phone and insurance, then cancel the old ones once the new ones have gone through.

5. Run down the old account

   Do not leave a large balance with a bank you owe money to. Keep a copy of the final statement, which your adviser may need.

Our guide on preparing your DRO application lists the other documents you will be asked for. If you are refused a basic account, some credit unions offer accounts to members. Prepaid cards can help with budgeting, but neither fully replaces a bank account.

Telling a bank about your DRO

During the 12 months you must tell any bank or building society about the order when you open an account or apply for an overdraft. This is one of the DRO restrictions. Application forms normally ask about bankruptcy, IVAs and DROs, and you must answer truthfully even for a basic account. Not declaring it is a criminal offence, and the bank can close the account if it finds out later. The duty ends with the order.

Overdrafts and the DRO

An overdrawn current account is a qualifying debt and should be listed in the DRO with your other creditors. The balance is frozen, interest and charges stop, and the bank cannot pursue it. When the DRO ends the overdraft is written off. Expect the bank to remove the facility and probably close the account, which is another reason to have a new one ready.

Do not increase the overdraft shortly before applying, and do not run up a fresh overdraft during the DRO. The first could be seen as taking on debt you knew you could not repay. The second would be a new debt the order does not cover, and a basic account should not allow it anyway.

Joint accounts

A joint account needs care. If it is overdrawn, you can include your share in the DRO. The other account holder remains liable for the whole overdraft, and the bank can pursue them for it. The bank is also likely to freeze or close a joint account once it knows one holder has a DRO, which affects the other person's access to their money.

Talk it through before applying. Many couples move to separate accounts, with the person who is not applying keeping a standard account and the household bills split between the two. Any credit balance in a joint account is treated as partly yours and can count towards your assets.

Direct debits, wages and benefits

Move every regular payment that keeps your household running to the new account before the DRO is approved. Missed rent, council tax or energy payments are new debts that the order does not cover. Check the old account for anything you have forgotten, such as annual subscriptions.

If you cannot open a new account in time, and wages or benefits are about to land in an overdrawn account, use a first right of appropriation letter. This written instruction is sent to the bank before the money arrives. It says that the payment must be used only for the purposes you list, such as rent and food. Banks must honour it, but it has to be sent each time money is due. Your adviser or a free advice service can give you a template.

Savings and the £2,000 asset limit

Any money in your accounts on the date of application, beyond what you need for that month's bills, counts towards the £2,000 asset limit. So do savings accounts, ISAs and cash. A balance that pushes you over the limit would mean you do not qualify. Do not move money to someone else to get under the limit. Giving away assets before applying can lead to refusal or revocation. Our page on income and asset limits explains what is counted and what is ignored.

Bank accounts after the DRO ends

Once the order is discharged, the duty to declare the DRO when opening an account ends. The order remains on your credit file for six years from the approval date. Banks that run a credit check may still decline a standard account with an overdraft for some time. Many people keep their basic account for the whole period.

Options tend to widen as the entry ages and your record of on-time payments grows, but no bank is obliged to offer you a particular product. See what happens after a DRO ends and how a DRO affects your credit score for the longer-term picture.