Bank Overdraft Debts & Trust Deeds

Overdraft debt in Scotland gets included in protected trust deeds.

You don’t have the option to leave a small overdraft out of your creditor list. All qualifying debts that exist on the date you sign a trust deed must be included.

In practical terms, this makes it likely you’ll need to open a new bank account before going ahead with a debt solution such as a trust deed.

Overdrafts are treated exactly the same as other debts like credit cards, unsecured loans, or council tax arrears.

The amount you owe on the date you sign your trust deed gets included in the arrangement. This also applies if your overdraft was already passed over to a debt collection or debt purchasing firm.

An overdraft facility isn’t included if it wasn’t being used on the date of signing. Only the money actually owed to the bank on the date of signing gets included.

If your overdraft debt increases after you sign your trust deed, the extra amount owed is not included. You will remain liable for repaying any new debt incurred after signing your trust deed.

Bank overdraft debt also gets included in Scottish personal bankruptcy and DAS debt payment programmes. All of the qualifying debts you owe are included in these two statutory debt solutions.

You don’t have the option to choose to leave a debt out of these solutions. You’re therefore probably going to need to open a new bank account if you are overdrawn.

Both of these formal debt solutions include restrictions against about using further credit, so you should not continue to use an overdraft after they have begun.

A less formal debt solution is a DMP (debt management plan). If you only occasionally go overdrawn, it might be possible to leave this bank account out of your DMP.

However, if you do owe the same bank money on another type of account (like a credit card, for example) you will still need to open a new bank account elsewhere.

Your bank may help if you contact them about your concerns. For example, they might increase your overdraft limit if you’re at risk of going above it.

You can also ask your bank to waive interest (though they may not always agree to this). As a result of Covid-19 support UK banks are likely to agree to waiving interest on overdrafts of up to £500 if you’ve been financially affected by coronavirus.

If you have savings consider transferring money into your overdrawn bank account to avoid interest charges.

You could also switch bank accounts. It’s possible to take your overdraft to a new bank, provided that the new bank agrees to this.

You can easily compare current account fees and interest charges by using the filters on this tool provided by the Money Advice Service.

What if you have an unused overdraft facility that isn’t included in your trust deed? Trust deeds don’t impose a restriction against using further credit, so in theory you could use this credit.

Remember that you will receive no expenditure allowance to repay the new interest costs. This is likely to put your household budget under strain.

If you become unable to manage your bills and expenses because of new overdraft interest costs, your Scottish trust deed may become at risk of failure.

Banks try to avoid providing overdrafts to people using Scottish trust deeds. They can monitor the official personal insolvency records to identify their insolvent customers.

If a bank discovers that they’re providing you with credit, your bank account could get frozen or closed without notice. This is likely to cause serious disruption and inconvenience.

Please get in touch for advice about starting a protected trust deed or any other type of debt solutions.

Our friendly advisers identify debt solutions that can improve your personal finances. All contact with you is confidential and handled by a fully-qualified debt adviser.

You can also ask debt questions in our online forum. Debt experts are available to assist you with high quality information and guidance.