A Trust Deed is a fixed-term voluntary arrangement (usually 48 months) between you, your creditors and a qualified independent ‘Trustee’ who takes control of your debt repayments. Creditors can no longer call or chase you for money, but must instead deal with the Trustee, and you are protected from further legal action.
A Trust Deed is a form of insolvency and a formal agreement between an individual facing serious debt problems and their creditors. Trust Deeds were created as an alternative to bankruptcy in instances in which individuals find themselves unable to pay back large amounts of unsecured debts.
A Trust Deed is designed to provide indebted individuals in Scotland a chance of a fresh financial start. The terms of a Trust Deed are crafted in a way that should mean all parties involved are satisfied and that a debt repayment plan can be affordably maintained over a specified period of time.
A Trust Deed will typically last for a period of four years and is an agreement between your creditors and yourself with the help of a Trustee, who has to be a fully licensed insolvency practitioner.
The deed will set out the terms under which you will repay a portion of the unsecured debts that you owe. Assuming that you stick to the repayment plan created on your behalf, however, you will eventually be released from your responsibility to repay the remaining outstanding debts in your name.
Part of the appeal of Trust Deeds is that they serve to legally protect individuals from their creditors, which can provide very valuable reassurance to people who have no way of paying off their debts and are worried about the consequences. In that sense, Trust Deeds are designed to deliver clarity with regard to what debts will and will not be paid back and over what sort of timeframe. That clarity should mean that your creditors are satisfied and any potential spiral into increased debt difficulties can be arrested by taking positive action.
A key figure throughout the life of a Trust Deed agreement will be the insolvency practitioner assigned as its Trustee. It is the responsibility of the Trustee to make sure that all relevant parties are fully aware of the terms of the deed and the details of any repayment deal that has been struck.
The key point for debtors under these circumstances is to realise that failing to keep up with the terms of a Trust Deed without good reason could be serious. If for any reason you become unable to satisfy the deed’s terms, you must inform your appointed Trustee as a soon as possible. Where there are unavoidable circumstances that mean you cannot make payments as agreed, there are ways to keep the terms of the deed intact but only where legitimate reasons can be demonstrated.
Much of what Trust Deeds exist to create is a situation in which indebted individuals can succeed in paying back some of the debts they owe at affordable rates. Keeping pace with the terms of the deal might not always be easy but they are not designed to be excessively onerous. From the point of view of creditors, it is better to receive some repayments in a structured way rather than to receive little or nothing from debtors who do not have a Trust Deed in place and who have no hope of becoming debt-free.
An individual can only enter a Trust Deed when they have no real prospect of paying off their debts within a reasonable timeframe, which is why it is considered a form of personal insolvency. However, your creditors are not automatically obliged to agree to the terms of a Trust Deed simply because you have applied to enter one.
In order for a deed to be enforced, it needs to have the support of at least half of your creditors or those owed over 67% of your total unsecured debts. To halt the deed as proposed by your Trustee, a majority of your creditors or any number owed over 33% of your total debt must formally object in writing within five weeks of the proposals being made.
So there is scope for a Trust Deed plan to be rejected but the aim is to facilitate contact and communication between creditors and debtors in ways that stand a good chance of seeing agreements reached by all parties involved. Having an insolvency practitioner on hand to mediate the process can help reassure both sides of the equation and see that a Trust Deed solution can be settled on and established.
If you live in Scotland and you are struggling to overcome personal debt problems then a Trust Deed could be a sensible option and a positive way to get to grips with your financial problems. To qualify for a Trust Deed, the scale of your unsecured debts has to be in excess of £5,000. With very large scale debts, it could be that creditors will not accept the terms of a Trust Deed deal as presented to them and you may have to consider a Debt Arrangement Scheme or Sequestration instead.
A Trust Deed is generally aimed at people who have racked up credit card, store card and other unsecured loan debts and found themselves unable to keep up repayments to their respective creditors. Other types of debt, such as student loans, are not counted into the calculations around Trust Deeds but generally the aim is to consolidate debts in a way that makes an individual’s financial problems more manageable.
The reality is that entering a Trust Deed arrangement in Scotland is very likely to have a negative impact on your credit rating as an individual. As a result of which, lenders and creditors around the country might view you as something of a risk when it comes to taking on unsecured debt.
However, if you are already in an unsustainable financial position, it is likely that you would find it difficult to access future credit in any case. What a Trust Deed offers is a chance to arrest the decline of your situation with regard to money and debt management and to demonstrate a willingness to meet your obligations and move forward.
The typical duration of a Trust Deed is four years, during which time it is recommended you do not take on any further unsecured debt. So, for that period of time, your credit rating is not likely to be a pressing concern. Once the deed has ended, your credit rating might be far from perfect but you will at least be in a position to improve it as time goes on by showing an improved capacity for handling credit and unsecured debts effectively.
In the context of a Trust Deed agreement being drawn up, your Trustee will take account of any assets you own and quantify the equity at the outset with the aim to ensure that you can stay in your home.
There might be instances in which remortgaging your home or other property assets will represent the best way forward in resolving your financial problems under the terms of a Trust Deed. But it is by no means inevitable that you will be forced to sell your home completely to satisfy your creditors of your commitment to meeting their repayment demands.
A Trust Deed is not designed to make life unbearable or increasingly difficult for people who have found themselves saddled with debts they have no hope of paying back. In fact, affordability on the part of anyone entering a deed is an essential consideration from the outset and as the process moves forward.
From the perspective of creditors, the key issue is reliability and therefore it makes sense for them to ensure that the terms of your Trust Deed are realistically affordable.
So a Trust Deed takes account of the kind of everyday overheads and outgoings you are expecting to face as an individual and seeks to ensure that you have enough money to live on while the deed is in place. The contributions are calculated by using the Common Financial Tool which is a calculator set down in legislation to assess affordable contributions
It is your responsibility as the indebted party to inform your Trustee when and if your financial situation changes significantly in any way, whether for better or worse. If you don’t then there’s a chance that the terms of your Trust Deed will be breached, potentially leading to the collapse of your Trust Deed agreement.
A ‘protected’ Trust Deed is one that effectively prevents your creditors from petitioning for you to enter sequestration. So protection in this context offers added reassurance if you are concerned that your debt problems might mount up so much that you’re forced into full sequestration, which can have more lasting and difficult-to-overcome ramifications for individuals in Scotland.
Among the negatives or the ‘cons’ of a Trust Deed are that equity holdings in your house might have to be realised to satisfy your creditors. The prospect of remortgaging or selling your home, in extreme cases, can be enough to put some people off entering a Trust Deed.
Other potentially negative aspects of what the Trust Deed process entails might include the fact that your credit rating will be negatively impacted though, as previously mentioned, it’s unlikely that your credit rating will be particularly healthy in any case.
A further drawback for some people is that entering a Trust Deed as a form of insolvency will become a matter of public record as an entry is made on The Register of Insolvencies.
Trust Deeds place restrictions on an individual’s financial flexibility but the terms are negotiated through a Trustee rather than through the courts. So if you can find a workable repayment plan then you will usually be able to keep your home while paying off your debts as arranged.
A Trust Deed runs for a specified period of time and can allow debtors to avoid paying back the entirety of any amounts of money they owe to creditors. A deed also helps to ensure that a person’s debt problems don’t continue to mount up through the addition of interest or other charges.
It is not necessarily the case that your employer will find out about your situation if you enter a Trust Deed in Scotland. Unless stipulated by the terms of your employment contract, you are not obliged to inform anyone of your decision to enter a Trust Deed. Where your contract states that you have to, however, you will of course need to make your employer aware of some of the details, although this does not necessarily mean you will lose your job as a result.
Generally, issues around insolvency and sequestration are regarded more seriously and as disciplinary matters in the context of some professions more than others. Some sectors and employers tend to take a dimmer view of insolvency among their respective workforces than others.
After you’ve entered a Trust Deed, there is always the remote chance that your employer will spot your name on the Register of Insolvencies –particularly if you work in a bank.
There are no laws that prohibit anyone entering a Trust Deed from operating on a self-employed basis. That situation might make it more difficult for the terms of a deed to be agreed by all the necessary parties but legally speaking self employment is perfectly acceptable.
The problem for self employed persons, however, is that the terms of a Trust Deed (and the consequences of failing to meet them) remain as strictly in place for them as for anyone in any other form of employment.
Key to the appeal of Trust Deeds as a debt solution in Scotland is their potential to offer indebted individuals a fresh start in the way they deal with financial matters. The option should not be mistaken for an easy way out of unsecured debts but it presents a route to a resolution when a situation might otherwise simply go from bad to worse.
As ever, with issues around debt management, insolvency, Trust Deeds and sequestration, it’s very important to seek out the advice of specialists in the field who can help you find the best possible way forward whatever situation you’re in. Scotland Debt Solutions’ experts provide free and confidential support covering all aspects of personal debt and insolvency. Get in touch with us directly to find out how we might be able to help and advise you.
They can make an assessment, based on your personal circumstances, as to whether a Trust Deed is your best option. If so, we will draft an agreement detailing the proposed repayment plan.
Once you have signed your Trust Deed, and provided the majority of your creditors approve, the Trust Deed becomes protected, meaning that your creditors can take no further action against you. They can also talk only to your Trustee. Any telephone calls or correspondence you receive should simply be forwarded on.Contact Us