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

How should I prepare before entering a Trust Deed?

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 or 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.