Bank accounts and a trust deed
You can still have a bank account during a trust deed. The main thing to plan for is any account held with a bank you also owe money to.
You can still have a bank account during a trust deed, and you will need one for your wages or benefits and for your monthly trust deed payment. The thing to plan for is any account held with a bank you also owe money to, because banks can use money in your account to reduce a debt you owe them. Talk to your trustee or adviser about your accounts before you sign.
Can you keep your bank account in a trust deed?
National Debtline’s trust deed guide confirms that you can still have a bank account. What happens to your existing accounts depends on your bank and on whether you owe it money.
- Tell your trustee about every account. You must give your trustee (the licensed insolvency practitioner who runs the trust deed) full details of everything you own, including money in the bank and savings. Savings are an asset and can be used to pay your creditors.
- Overdrafts can be included. mygov.scot lists bank overdrafts among the unsecured debts that can go into a trust deed.
- New borrowing is not covered. Any debt you run up after signing, including going further into an overdraft, is not part of the trust deed and will not be written off.
- Benefits are protected from contributions. No contribution can be taken from Universal Credit or other social security benefits.
Whether your bank lets you keep an existing account, and on what terms, is up to the bank. Ask your trustee what to expect for each account you hold, rather than assuming.
What if you owe money to your bank?
Banks can use your money to pay what you owe them. This is called the right of set-off. If your wages go into an account with a bank you also owe money to, some of that money could be taken towards the debt.
The Financial Ombudsman Service says banks have a general right to set off money in your account against a debt you owe them, even if it is not written in the account’s terms. It expects banks to use this fairly. It generally looks for the bank to have:
- only done it where you were not keeping to the terms of the account you owe money on
- given you a reasonable chance to repay first
- told you about its right of set-off at least 14 days beforehand
- avoided putting you into financial difficulty, and told you promptly when it happened.
StepChange Debt Charity explains that set-off only works where the account and the debt are with the same lender, and that the rules are more complicated for joint accounts and joint debts. Citizens Advice Scotland adds that banks with different names can belong to the same banking group, and that a new account at a bank in the same group could be used to pay debts on your old one.
What you can do
- Before your trust deed starts, consider having your wages or benefits paid into an account with a bank, and banking group, that you do not owe money to.
- Move your essential payments, such as rent or mortgage, council tax and energy bills, to that account.
- Tell your trustee about the change and give them details of all your accounts.
- If money is taken from any account after you sign, tell your trustee straight away.
Want to talk through your options? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.
May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.
What is a basic bank account?
A basic bank account is a simple current account for people who cannot get, or do not want, a standard one. Citizens Advice Scotland explains that you should still be able to get one even if a credit check shows previous bad debts. A basic account usually:
- has no fees for everyday banking
- lets you have wages and benefits paid in
- lets you pay bills by direct debit and use a cash machine
- does not come with a cheque book or an overdraft.
Under the Payment Accounts Regulations 2015, the banks designated by the Treasury must offer a basic account to eligible customers. To be eligible you must be legally resident in the UK and either not already have a similar account with a UK bank, or not qualify for the bank’s other accounts. The bank can only refuse on limited grounds, such as where opening the account would break fraud, money laundering or immigration law, or because of abusive behaviour towards staff. If you are refused, the bank must normally tell you why in writing and explain how to complain, including to the Financial Ombudsman Service.
What about joint accounts?
If you have a joint account with a partner or family member, think about it carefully before you sign.
- Credit files. The Information Commissioner’s Office says a joint account can create a financial link between your credit files, so a lender assessing the other person may also look at yours.
- Set-off. Whether money in a joint account can be set off depends on whose names are on the account and on the debt.
- Your trustee. Tell your trustee about any joint account and who pays money into it.
See partners, family and joint debts and how a trust deed affects your credit rating.
What about bank arrestments?
A bank arrestment is a type of diligence (legal action to enforce a debt) where a creditor with a court decree (judgment) or summary warrant has sheriff officers freeze money in your account. There is a protected balance of £1,000 that cannot be arrested. Once a trust deed is protected, earnings arrestments stop having effect by law. If you already have a bank arrestment, or receive a charge for payment (a formal demand that comes before most diligence), tell your trustee straight away.
If you are still deciding, you may be able to apply to the Accountant in Bankruptcy (AiB) for a moratorium on diligence. This pauses diligence for 6 months and is extended while a protected trust deed application is pending, but it does not freeze interest. See bank arrestment and the Scottish moratorium.
Other things to weigh up
A trust deed affects your credit rating for six years, is listed on the public Register of Insolvencies, has fees, may mean releasing equity in your home and cannot include every debt. If it fails, creditors can pursue you again and your trustee can petition for your sequestration (bankruptcy in Scotland). Other options include the Debt Arrangement Scheme (DAS), sequestration and the Minimal Asset Process (MAP). Free, impartial debt advice is available.
Official sources
Common questions
Can I open a bank account while I am in a trust deed?
Usually, yes. A standard current account may be harder to get, but a basic bank account is designed for people who cannot get one, including people with a poor credit history. Banks designated by the Treasury must offer basic accounts to eligible customers and can only refuse on limited grounds, such as fraud or money laundering concerns. A basic account does not come with an overdraft.
Will my bank close my account if I sign a trust deed?
It depends on the bank and on whether you owe it money, so check with your trustee rather than assume. Tell your trustee which banks you hold accounts with, and ask what they expect to happen to each one. If an account you owe money on is included in the trust deed, you may need a new account elsewhere. A basic bank account is usually an option if you are refused a standard one.
Can my bank take money from my account to pay my overdraft?
Banks have a general right, called set-off, to use money in your account towards a debt you owe that same bank, such as an overdraft, loan or credit card in arrears. The Financial Ombudsman Service expects banks to use it fairly and to give warning. If money is taken after you sign your trust deed, tell your trustee straight away.
Should I move my wages to a different bank before my trust deed starts?
It is worth considering if your wages or benefits go into an account with a bank you also owe money to. Citizens Advice Scotland suggests using a bank in a different banking group, because banks in the same group may treat your accounts as linked. Talk to your adviser or trustee first, and tell them about every account you hold.
Related guides
- Bank arrestment in Scotland Frozen account? The £1,000 protected balance, the 14-week rule and how to act fast.
- Partners, family and joint debts No joint trust deeds, joint debts, your partner's income and what happens to your family.
- Which debts can go into a trust deed? Debts you can include, debts that are not written off, and bills you keep paying.
- How a trust deed affects your credit rating How long a trust deed shows on your credit file, what lenders see and how to check your file.