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Can I have an overdraft if I have a Trust Deed?

A Trust Deed could help you if a) you have a significant amount of unsecured debt you can't afford to repay within a reasonable timeframe, and b) you live in Scotland.

The basic idea of a Trust Deed is that you'll repay as much as you can afford towards your unsecured debts every month, and once it's come to a successful end the remaining unsecured debt you can't afford to repay will be written off.

Some people may want to borrow further credit whilst their Trust Deed is in place - but could you have an overdraft if you're on a Trust Deed? The answer is sometimes yes, but only if there's a good reason.

What is a Trust Deed?

A Trust Deed is a legally binding form of insolvency, available exclusively in Scotland. It is available to people with at least £5,000 worth of unsecured debts – or £10,000 worth if they are joint debts.

Once you enter a Protected Trust Deed, you will:

•  Make one affordable payment towards your unsecured debts each month, calculated to fit around your other essential living costs (e.g. rent/mortgage, food and bills)

•  Be legally protected against further demands from your unsecured lenders

•  Be safe from repossession - but you may have to release some equity from your home if you're a homeowner

•  Have any outstanding unsecured debt included in your Trust Deed written off on successful completion.

Moreover, a Trust Deed will give you a date you'll be free of your unsecured debts - typically after three years - as long as you stick to all the agreed terms.

You can find out more about Protected Trust Deeds on this page.

Could I get an overdraft whilst a Trust Deed is running?

One of the main downsides of a Trust Deed is that it will affect your credit rating for six years after it starts. As a result, you're likely to have difficulty getting further credit during this time - including an overdraft - and you may be charged more for any credit you do borrow.

However, you can normally borrow up to £500 during a Trust Deed without informing your lenders. If your bank account provider has allowed you to keep your overdraft, you may be able to borrow this way - but you should only do this if you really need the money (e.g. for car repairs).

Besides, many people who've struggled with their debts and have to enter a Trust Deed will decide to avoid further borrowing altogether - in order to improve their finances and avoid getting into similar difficulties again in the future.

Is a Trust Deed right for me?

A Trust Deed is just one of a number of debt approaches available in Scotland - and what situation you're in with your debts will largely determine what approach is most suitable for you.

Speak to one of our advisers today to find out the best next step for your debt problems.

Article Updated 12/12/2013