Trust Deeds and how they affect property assets
June 10, 2015
If you are considering a Scottish Trust Deed, the question of how it will affect your property assets is probably at the forefront of your mind.
Protecting their home is a major issue for anyone in debt, and essentially there are two options when it comes to Scottish Trust Deeds:
- Unprotected: you do not have to include your property in this type of Trust Deed. If there is significant equity available in the property, however, it is likely that your creditors will object and will be able to pursue you through the courts. This could result in your sequestration (bankruptcy).
- Protected: to achieve ‘protected’ Trust Deed status, you will need to include your property. Your creditors will no longer be able to take legal action against you as long as the terms of the Trust Deed are met.
If you decide to include your property asset(s), the Trustee will have it valued and you will need to transfer it to their control.
Should your property be mortgaged, the amount of equity available for use by the Trustee is arrived at using your lender’s mortgage redemption figure.
A lump sum intended to repay part of your debt is then agreed between the Trustee and your creditors.
When this sum of money is required, which is generally at the end of the Trust Deed period, you may have to sell your property or remortgage it. Alternatively, you might be able to obtain a Mortgage to Rent whereby a landlord buys your property and rents it back to you.
Third party ‘buy-out’
Other options include a third party ‘buying out’ the Trustee’s interest in the home – this could be a family member or friend wanting to help out, or make an investment in property. Having done this, your Trustee will not be allowed to ask for further payments using your home, even if its value has increased. Some Trustees also offer extended periods of time to pay this extra sum.
If there is little or no equity in your home, you may still be required to transfer it to the Trustee, who will have it valued again at the end of the Trust Deed term (usually four years), and decide on how to progress at that point.
What about second properties?
Although you may not be required to sell a second home, all properties owned by you will be factored into a Protected Trust Deed, as they represent part of your ability to repay outstanding debts.
Creditors will expect all assets to be taken into account and form part of the repayment calculations. Although this includes all property assets in this country or abroad, whether you will have to sell your second property depends on the situation at the end of your Trust Deed.
Jointly-owned property assets
If your home or other property assets are jointly owned, the Trustee will require the consent of your co-owner and any other people with the right to live there, before proceeding with a Trust Deed.
If your co-owner refuses to allow the property to be included as part of a Protected Trust Deed, your Trustee has the right to enforce the sale of the property, and divide the value with the co-owner. This process is called a ‘division and sale,’ with your part of the proceeds being used to repay creditors.
Scotland Debt Solutions has offices throughout Scotland, and can advise on the transfer of property assets prior to a Trust Deed being negotiated with your creditors.
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