Will all my debts be covered by a Trust Deed?

If you live in Scotland and have at least £5,000 of unsecured debt that you cannot pay, a Trust Deed is a powerful debt solution to help you get back on track.

A Trust Deed allows you to make affordable monthly or weekly payments over a fixed period (usually four years) towards your unsecured debts. And any debts included in the Trust Deed that you cannot clear during that period are usually written off. 

One of the first questions people ask is: “Will all my debts be covered by a Trust Deed?” The simple answer is that it depends on the type of debts you have. There are some debts you cannot include in a Trust Deed, but you can deal with the majority of unsecured debts through this arrangement. 

How does a Trust Deed work?

A Trust Deed is a formal, legally binding debt solution that’s only available to people in Scotland. It’s potentially a good fit for those who can no longer pay their debts in full but can make a regular contribution towards them over a fixed period. 

You will need the help of an Insolvency Practitioner (known as the trustee) to set the Trust Deed up. They will work with you to assess what you can realistically afford to pay and send a proposal to those you owe money to (your creditors). Your creditors then have five weeks to respond. 

• Overdrafts

Overdraft debts can be covered by a Trust Deed, even when the account is still in use. 

• Buy-now-pay-later arrangements

Buy-now-pay-later deals are becoming an increasingly common source of debt problems, but you can include them in a Trust Deed. 

• Utility arrears

Although you cannot include ongoing utility payments in a Trust Deed, it can cover energy, water, broadband or mobile phone arrears.  

• Council tax debts

Significant council tax rises across Scotland have made them an increasing problem for many people. However, you can include them in a Trust Deed to reduce the pressure from local authorities, which can be aggressive in their pursuit of payment. 

• Tax debts

Certain tax debts, such as overpaid benefits and income tax arrears, can also be covered by a Scottish Trust Deed.  

• Rent arrears

Although you can include rent arrears in a Trust Deed, a landlord still has the right to evict you for unpaid rent. That’s why your trustee may suggest you keep payments towards rental arrears in your usual outgoings. That will allow you to pay them in full and protect your tenancy. 

What debts are not covered by a Trust Deed? 

You can include most common personal debts in a Trust Deed, but there are some that it does not cover. 

• Secured debts

You cannot include any debts, such as a mortgage, car finance agreement or secured loan, that are secured against personal assets. The lender can repossess the asset if you do not continue making the scheduled repayments. Sequestration (bankruptcy in Scotland) may be a better option if you have high levels of secured debt.

• Student loans

You cannot include Scottish or UK student loans in a Trust Deed. This payment will continue to be deducted from your salary via PAYE when you earn over a certain threshold.

• TV licence 

You cannot include TV licence arrears in a Trust Deed. You must pay it separately and continue to make the ongoing payments.  

• Court fines and orders

You cannot include any fines, penalties or compensation orders issued by the courts in a Trust Deed. You must make these payments in line with the court’s instructions.

Does a Trust Deed cover joint debts?

Joint debts are slightly different. Although you can include them in a Trust Deed, only your part of the liability will be covered. That means, although a Protected Trust Deed will shelter you from creditor pressure and legal action, the creditor will be able to pursue the other debtor, whether it’s a partner, friend or family member, for the full amount. 

Are all debts written off after a Trust Deed? 

If you stick to the terms of a Protected Trust Deed and make all the regular payments, any debts you have not paid in full will be legally written off at the end of the agreement.  

However, you will be liable for any debts the Trust Deed did not cover. You must also make ongoing payments towards any secured debts, and your credit rating will be affected for six years from the start of the agreement.   

Is a Trust Deed right for you?

If you live in Scotland, have unsecured debts of at least £5,000 and can commit to making a consistent monthly payment, a Trust Deed could provide a route to financial freedom. On the other hand, if your income is not stable or most of your debt is secured, a Debt Arrangement Scheme or Sequestration could be worth exploring. 

Please get in touch with your nearest office, contact us via WhatsApp or arrange a home visit to discuss your circumstances confidentially with our team.