However, not all creditors can arrest your bank account and even where they can, there is no guarantee they will succeed.
How do Bank Arrestments work?
Bank arrestments are legally known as Actions of Arrestment and Furthcoming and are a two-stage process.
The first stage is when the funds are attached, which means your bank is instructed to freeze your funds (this is the arrestment phase); the second stage is known as the Furthcoming, which is when the funds are taken from your account and given to your creditors.
The second stage can only occur in two situations. The first is when you sign a mandate and authorise your bank to transfer them, which can be at any point after the arrestment. The second is 14 weeks after the arrestment, when providing you have not lodged any objection, the funds are transferred by operation of law, regardless of whether you agree to the transfer or not.
When can creditors do a Bank Arrestment?
Bank Arrestments are a form of diligence in Scots Law, which means they are the are a legal form of debt recovery and cannot be executed by just anyone but must be executed by a Sheriff Officer or Messenger at Arms. As both Sherriff Officers and Messenger at Arms are officers of the Court, this means bank arrestments can only be executed if your creditors have obtained the authority of the Court to carry out the Arrestment.
Authority of the Court
What the authority of the court means, depends on what type of debt is involved. If the debt is a consumer credit debt, like a credit card, overdraft, or personal loan, then the firm that is owed the money must take you to court and obtain a court order known as a decree.
Once the Court has awarded the decree, they must then wait 14 days to allow you to appeal any decision, before applying for an extract of the decree. Once this has been issued they can then provide this to a Sheriff Officer or Messenger at Arms and instruct they execute the arrestment on your bank account, by delivering it to the bank that holds your accounts.
To do this, they must know what bank you have your account with. This is one reason you may not wish to provide creditors your bank account details where you are struggling to pay your debts.
Summary Warrants and Bank Arrestments
The process for executing a bank arrestment is different where council tax or debts owed to HMRC are involved.
The reasons for this is because these types of debts can be legally constituted using a Summary Warrant, which is a type of court order, but unlike other court orders does not involve a court hearing.
To apply for a Summary Warrant, both local authorities and HMRC make an application to the Court. The warrant is issued in your absence and without a court hearing.
As there is no court hearing, there is an extra stage the creditors must complete if they wish to execute a bank arrestment. They first must serve a Charge for Payment.
This is a legal document that is served on you giving you 14 days to pay your debt in full. If you don’t, or if you don’t apply to the Court for a Time to Pay Order, the creditor is then allowed to arrest your bank account.
Finally, there is a third procedure that can be used to arrest a bank account and is known as Summary Diligence.
Summary diligence is a special procedure that allows a debt to be registered for preservation and execution with courts.
The summary diligence procedure operates exactly like the procedure for credit cards and personal loans: it is not necessary to serve a charge for payment, but equally it is not necessary to obtain a court order either. The process of registering the obligation with the courts (in The Books of Council and Session), acts as a substitute for the process of going to the courts to get a decree, although you need to be in default with the debt before the creditor can extract the debt from the register and execute diligence on it.
Not all creditors can use summary diligence, however. It cannot be used, for example, to enforce debts regulated by the Consumer Credit Act, which covers credit cards and store cards, taken out when you are not borrowing as a business. Nor can it be used for council tax and HMRC debts, as an essential component of the summary diligence process is you must explicitly consent to the process being used when you accrue the debt. As both these types of debts are non-voluntary (they are accrued because the law says you meet the criteria for paying them) your consent is not required.
Summary diligence, primarily, is used for business debts, landlord guarantees and credit union loans (which are not regulated by the Consumer Credit Act).
There is no limit to how much funds a creditor can take when they arrest your bank account. They can seize the full amount owed (including interest and charges) and their legal costs and the costs of executing the arrestment itself.
Minimum Protected Balance
There are protections on how much the creditor must leave in your bank account, however. This is called the Minimum Protected Balance and means £1,000 must be left in your bank account.
When does the Arrestment become Effective?
The important date or an arrestment is the day it is served on your bank. This is the date of execution. The date of execution is important, as only the funds in your account on this date can be arrested. If there are no funds in your account on this date the arrestment fails, even if the next day £1,000, for example is paid into it.
When will a Bank Arrestment Fail?
Banks arrestments will fail where there are no funds in your account. They will also fail if your account is in overdraft of the funds available on the date of execution are less than the Minimum Protected Balance.
How do you Challenge a Bank Arrestment?
Bank arrestments can be challenged. There are two main means of doing so. One is submitting a Notice of Objection, the other is applying for it be recalled or restricted on the grounds it is unduly harsh. For more information read How do you Challenge a Bank Arrestment?