Bank Overdraft Debt in Scotland: What Are Your Options?

Overdraft Debt in Scotland — Why It Works Differently

If an overdraft has tipped from a short-term convenience into a persistent debt that is hard to clear, it can feel like being stuck in a financial loop. Interest and charges accumulate, the bank's tolerance eventually runs out, and what started as a few hundred pounds can grow into a serious liability. In Scotland, the rules governing how that debt is handled — and what formal solutions exist — differ significantly from those in England and Wales.

Scotland has its own legal framework for personal debt, administered largely by the Accountant in Bankruptcy (AiB), a Scottish Government agency. The solutions available — including the Debt Arrangement Scheme (DAS), Protected Trust Deeds, and Scottish bankruptcy (sequestration) — are distinct instruments created under Scots law. Understanding which route applies to an overdraft situation requires knowing how overdraft debt is classified and what each solution covers.

Is an Overdraft a Formal Debt in Scotland?

An overdraft — whether an agreed facility that has been maxed out or an unarranged overdraft that accumulated over time — is classified as an unsecured consumer debt. This places it in the same legal category as credit cards, personal loans, and catalogue arrears. Secured debts (like a mortgage) are treated very differently, but an overdraft carries no security against an asset.

Under the Prescription and Limitation (Scotland) Act 1973, most unsecured debts in Scotland prescribe (become legally unenforceable) after five years of no payment and no written acknowledgement of the debt. This is notably shorter than the six-year limitation period that applies in England and Wales. However, prescription does not happen automatically — the clock only runs cleanly if there has been no payment and no written contact acknowledging the debt during that period.

It is worth noting that a bank may still pass the debt to a collections firm or obtain a court decree before prescription runs out. Once a decree has been granted by a Scottish sheriff court, the debt does not prescribe in the usual way, and enforcement options open up to the creditor.

What Happens When an Overdraft Goes Unpaid in Scotland

Banks typically follow a staged recovery process when an overdraft is not repaid. Initially, the account may be frozen and the overdraft facility withdrawn. The bank will issue default notices and attempt contact. If informal resolution fails, the bank may sell the debt to a third-party collections company or pursue a court remedy.

Sheriff Court Action

In Scotland, creditors seeking to recover unpaid debt through the courts use the Sheriff Court system rather than the County Court used in England and Wales. A creditor can raise a court action, and if successful, the sheriff grants a decree. Once a decree exists, the creditor can apply for diligence — the Scottish term for legal enforcement.

Diligence — Scottish Enforcement Methods

Diligence in Scotland includes several enforcement tools that differ from those used south of the border:

• Earnings Arrestment — a direct deduction from wages, similar in effect to an Attachment of Earnings Order in England.
• Bank Arrestment — a freeze on funds held in a bank account. In Scotland, there is a Protected Minimum Balance (PMB) — currently set at £566.51 — which cannot be arrested, providing a degree of protection for essential living funds.
• Inhibition — a notice registered against property that prevents it being sold or remortgaged without settling the debt.
• Attachment — seizure of non-essential goods (rarely used for consumer debt).

Scotland does not use bailiffs in the same way as England and Wales. Enforcement in Scotland is carried out by sheriff officers, who operate under a separate legal code. The term "bailiff" has no legal meaning in Scotland.

Formal Debt Solutions Available in Scotland for Overdraft Debt

Several formal solutions exist for people in Scotland who cannot manage unsecured debts, including overdrafts. Each has different eligibility criteria, consequences, and costs. The following is factual information about how each works — it is not a recommendation about which, if any, is appropriate in any individual case.

Debt Arrangement Scheme (DAS)

The Debt Arrangement Scheme is a Scottish Government scheme administered by the AiB. It allows eligible individuals to repay debts in full over an extended period through a Debt Payment Programme (DPP). While a DPP is in force, creditors are legally prevented from taking further action, including diligence. Interest and charges on included debts are frozen.

DAS is open to people with one or more debts regardless of the total amount. Overdraft debt can be included. A DPP is arranged through an approved money adviser, and there is no minimum or maximum debt level required to apply. A key feature is that DAS results in full repayment rather than a write-off — it restructures how and when debts are paid.

Protected Trust Deed

A Protected Trust Deed is a formal insolvency solution unique to Scotland, roughly equivalent to an Individual Voluntary Arrangement (IVA) in England and Wales, but governed by different rules. The individual transfers their assets to a trustee, makes contributions to creditors over a set period (typically four years), and the remaining unsecured debt — including any remaining overdraft balance — is written off at the end.

To qualify, a person must be insolvent (unable to pay debts as they fall due), resident in Scotland (or have been within the last year), and have unsecured debts that meet the minimum qualifying threshold. A Protected Trust Deed must be offered to creditors, and if a sufficient proportion (by value) do not object within a set period, it becomes protected — meaning dissenting creditors cannot then pursue separate diligence.

Sequestration (Scottish Bankruptcy)

Sequestration is the formal bankruptcy process in Scotland, governed by the Bankruptcy (Scotland) Act 2016. There are two main routes for individuals:

• Debtor Application — a person applies directly to the AiB rather than going through court. To qualify, debts must generally be at least £3,000 and the applicant must be unable to pay them.
• Minimal Assets Process (MAP) — a simplified, lower-cost bankruptcy route for people with low income and limited assets. Debt must be at least £1,500 and no more than £25,000. There must be no assets above certain thresholds and income must be low enough that no contributions can be made.

In both cases, the AiB application fee applies. Sequestration typically lasts 12 months, after which the individual is discharged from qualifying unsecured debts. However, there are restrictions during sequestration — including on obtaining credit — and the bankruptcy is recorded on the Register of Insolvencies, which is publicly accessible.

Overdraft Debt and the Effect on Credit

Regardless of how an overdraft debt is resolved — whether through repayment, a formal scheme, or insolvency — the impact on a credit file is worth understanding. A default registered by the bank will remain on a Credit Reference Agency (CRA) file for six years from the date of default, even after the debt is paid or written off. This applies whether the solution is DAS, a Trust Deed, or sequestration.

Sequestration and Protected Trust Deeds are entered on the AiB's Register of Insolvencies, which is a public register. Some lenders check this register independently of credit reference files. DAS programmes also appear on the Debt Arrangement Scheme Register during the term of the programme.

Practical Steps Before Formal Solutions Are Considered

Before any formal debt solution is put in place, there are practical steps that a regulated debt adviser would typically explore. These include contacting the bank directly to discuss repayment options, checking whether the overdraft fees were applied correctly (particularly for unarranged overdrafts, where FCA rules changed significantly in 2020 to cap unauthorised charges), and establishing a full picture of all debts to understand whether the overdraft is part of a wider debt problem or a standalone issue.

The Financial Conduct Authority's changes in 2020 required banks to charge a single annual interest rate on all overdrafts rather than complex fee structures. If an overdraft balance was inflated by pre-2020 charges, it may be worth raising this with the bank or the Financial Ombudsman Service.

Free Debt Advice Available in Scotland

Anyone in Scotland dealing with overdraft debt — or wider debt problems — has access to free, impartial debt advice from regulated organisations. These services are completely free to use and independent of commercial debt companies:

• MoneyHelper — the government-backed money guidance service, available at moneyhelper.org.uk
• StepChange Debt Charity — provides free debt advice and can help with Scottish-specific solutions including DAS
• Citizens Advice Scotland — local bureaux across Scotland offer free debt advice and can assist with DAS applications
• National Debtline — specialist telephone and online debt advice, including dedicated Scottish debt information

Approved money advisers — required to access DAS formally — include staff at Citizens Advice bureaux and StepChange. According to GOV.UK and the AiB, all formal DAS applications must go through an approved money adviser.