Understanding How Trust Deeds and Sequestration View Secured and Unsecured Debts

December 4, 2013

If you’re a Scottish resident struggling with personal debt and you’re considering a trust deed or sequestration as possible solutions, it’s important to realise that some types of debts cannot be managed within a formal insolvency procedure.

Below, we’ll discuss the types of debts that can be accepted into a trust deed or sequestration – and potentially be written off.

In any insolvency procedure, the only liabilities that can be written off are unsecured debts.

Understanding the difference between secured and unsecured debts can help you determine how much of your debt can be managed through a trust deed or sequestration process.

The primary difference between an unsecured debt and a secured debt lies in whether you used property or assets to secure the debt.

• If you used any of your assets or belongings as collateral in order to obtain approval for credit or a loan, then it is considered a secured debt. The asset you used as collateral is referred to as a ‘security’ because it protects the creditor from the possibility of taking a loss in the event of default. Neither a trust deed nor a sequestration process can be used to manage or reduce a secured debt.

• An unsecured debt is not obtained through the use of a security (collateral), so the creditor has no right to seize assets if you fail to make payments. If you default on an unsecured debt, the creditor may pass the debt onto a collection agency or take you to court. Any unsecured debt can be covered by a formal insolvency procedure.

Examples of unsecured debts, which can be covered by a trust deed or sequestration:

• Credit card balances
• Payday loans
• Medical bills
• Catalogue accounts
• Overdrafts
• Unsecured personal loans

Examples of secured debts, which cannot be included in a trust deed or sequestration arrangement:

• Mortgage loan
• Vehicle loan
• Non-recourse loans
• Student loans

In addition to secured loans, there are other types of debt that cannot be managed using a trust deed or sequestration arrangement. These include:

• Court-ordered fines and penalties
• Forfeiture orders
• Child support
• Ailment obligations

The above examples are by no means exhaustive; there are other types of secured and unsecured debts but we’ve covered the most common. If you’re still curious about which debts you’ll be able to manage using a trust deed or sequestration, or if you have questions about any issue related to insolvency in Scotland, contact Scotland Debt Solutions today.

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