Can debt collectors take funds from your bank account?

Owing money to your bank could come in the form of overdue credit card or loan repayments. In this case you need to be careful, especially if you have a savings account with the same bank. They are entitled to something called the ‘Right to Set-Off’, which means they can take that money out of your savings account to put towards paying off your debts.

You need to be cautious of this because they can do this without your permission, and although they are meant to leave you with enough to live on, there are no strict rules.

Mortgages work slightly different in that banks can’t take out your money to pay for mortgage arrears, however they can withdraw an agreed overdraft and then demand repayment at any time. 

A way to avoid this is to keep your savings in a different bank to the one you owe money to. That way you are unlikely to have the money taken. However, do your research as some banks are linked despite them having different names. A way to check this is to look at their FCA licence. There are also guides online which tell you which banks and building societies are linked.

When you owe money to a company, and not a bank, the process is not as straightforward as they are not entitled to access your bank account. Lenders and creditors need to apply to the courts and get permission to take your money before they can gain access to your accounts. This results in your bank account being frozen, however there is a lengthy process before this can happen and it can take several weeks:

• The first step is an application for an interim third-party debt order. This will freeze your account and ring-fence the money you owe.
• Next, they have to apply for an order to obtain information. This will bring you to court and you have to give details about your bank accounts under oath.
• Finally, they need to apply for a third-party debt order which then enables them to take money out of your accounts.

The best way to avoid this happening is to sort out a plan for your debts. This way, you can avoid not being able to pay your creditors and work with them rather than against them. Debt management plans are an effective way to do this. A Debt Management Plan is an agreement between you and your creditors to pay all of your debts. You can arrange this yourself or through a company for a fee.