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.
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.
Article Updated 12/12/2013