Overdraft Debt And Your Scottish Trust Deed

15th October 2012

A bank overdraft can be incredibly convenient. They allow people to deal with short-term cash needs quickly and simply. The credit provided is usually fairly expensive, but despite this we seem to be making increasing use of this type of debt (according to debt data from the charity CCCS). As credit cards and bank loans become more difficult to obtain, more and more people are relying on long-term overdraft debt to help manage their finances.

When enquirers contact a debt adviser for help with setting up a Scottish trust deed they frequently fail to mention their overdraft when listing out their debts. One reason may be that overdrafts are seen as being temporary in nature (being cleared when payday comes around for example) and therefore not “real” debts such as credit cards or bank loans. Another reason is that many people would prefer to keep their existing bank account during a protected trust deed and fear that including their overdraft will result in the account being closed. Some people are simply unsure whether overdrafts might have to be left out if they have been recently used.

All debts that exist on the date of signing a trust deed in Scotland should be included. This includes your overdraft. If you have an overdraft you will be expected to make your trustee aware of this debt along with all of the others.

For many people this means they will have to open a new bank account prior to commencing with a trust deed. If you fail to do so you are likely to find your existing bank account closed suddenly (which will normally cause much inconvenience for you until a new one is opened).

It’s important to specifically select a bank account that does not offer an overdraft facility as the banks typically only offer their basic accounts to people that have entered a protected trust deed. If you carry on using an existing account with an overdraft facility (even if the bank is not a creditor in your Scottish trust deed) you may find that the account is later suddenly closed or the overdraft withdrawn without notice. Even if this does not happen you may find that the interest costs cannot be met by your budget during your debt arrangement, which might then place you in a parlous financial position all over again.

Remember that if you have a joint overdraft the other person will remain fully liable for all of the debt even if your trust deed becomes protected. This will not be a problem where both parties are signing trust deeds, but where this isn’t the case remember that the other person will need to have a plan in place to deal with the entire debt still.

Is it possible to obtain a bank overdraft once you have completed your Scottish trust deed (and been discharged from it)? There is no clear answer to this question as it will depend upon individual circumstances and the discretion of the bank that you apply to. However, we have had several Trust-Deed.co.uk forum members report that they have accessed bank accounts with overdrafts once their credit rating begins to improve (in the months and years after their discharge).

Wylie & Bisset Grant Thornton

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