What happens to your bank account when entering a Scottish Trust Deed?

June 20, 2017

If you’re entering a Scottish trust deed, it’s important to make sure you transfer your current account to another bank before it is signed. This is because, if you owe money to the bank, they have the right to use the funds in your account(s) to ‘set off’ your debt with them.

Additionally, your bank debt is likely to be included within the trust deed, so by changing banks you’re able to start afresh with no previous debt or history of late/missed payments. The risks of leaving your money where it is, and also allowing your wages to be paid into your existing account, are significant.

Considering the connection between your bank and the trust deed – owing money via an overdraft facility, personal loan, or credit card provided by the bank – you’re highly likely to lose money if you don’t move your account prior to signing.

There are two main reasons for this:

  • The banks’ right of set-off

Banks are entitled to set-off any monies owed to them using funds in one or more associated accounts. If they transfer money away from your current account, it leaves you at risk of being unable to meet your monthly trust deed payments, as well as keep on top of household bills. You lose more control over your own financial affairs, and are vulnerable to further action should you fail to meet the trust deed terms and conditions.

  • Possible account closure

If the bank discovered that you had signed a trust deed, they would probably close your account with little or no warning. Given that trust deeds are advertised in the Gazette, this situation is highly likely – with no recourse to obtain credit you would be left in an impossible position, having to pay your debts but with no access to money.

Banks generally have strict criteria when applying for a bank account. If you were a new customer, entering a Scottish trust deed would preclude you from opening all but the most basic accounts, so this also applies when you’re an existing customer.

Finding the right bank account when entering a Scottish trust deed

You need to establish which banks are not included as creditors within your trust deed. Although this sounds straightforward, there are many financial brands and subsidiaries, and it’s not always obvious to which banking group they are affiliated.

You may need to look on the Financial Services Authority (FSA) website where all banking ‘brand names’ are listed, and hopefully find a bank in your area that is not connected to the creditor names in your trust deed.

What type of current account can you open with a trust deed?

You will be limited in your choice of bank accounts because of the trust deed. Many banks offer a basic account for people with poor credit history, and once you’ve found a suitable current account you’ll need to transfer your standing orders and direct debits.

Your employer and benefits provider will also require the new bank account details so that your wages and benefits can be paid in.

Scotland Debt Solutions can help you find a suitable bank account prior to entering a trust deed. We will advise you on the best alternatives, and what you need to do before signing. Call one of our expert team for a same-day meeting free-of-charge.

 

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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