Trust Deeds in Scotland

Is a trust deed right for me?

A trust deed will typically last for a period of four years and is an agreement made between your creditors and yourself and administered with the help of a Trustee. The Trustee has to be a fully licensed insolvency practitioner.

The trust deed will set out the terms under which you will repay the unsecured debts that you owe through a series of affordable monthly instalments. Assuming that you stick to the repayment plan, you will eventually be released from your responsibility to repay the remaining outstanding debts in your name. This means you are not required to pay back the full amount of what you owe, rather just what you can afford over the next four years. After that point, the remaining debt will be written off.

As trust deeds are legally binding agreements, they help to 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 timeframe. That clarity should mean that your creditors are satisfied with the amount they are receiving from you on a monthly basis, while your debt pressures are eased due to knowing that there is an end point in sight.

By taking out a trust deed with Scotland Debt Solutions, we can help stop the phone calls and letters from those you owe money to. We will take responsibility for liaising with your creditors and letting them you that you have entered into a trust deed, and that all further communication must go through us.

Once a trust deed becomes ‘protected’ your creditors are no longer able to contact you or to request that you pay them more money. They are also unable to add additional fees, charges, or penalties onto your existing balance and cannot take legal action against you. This means they cannot force you into bankruptcy (sequestration).

A trust deed can only become protected if your creditors agree to this. Your proposal, along with the amount you are able to pay on a monthly basis, will be sent to all your creditors and they will have five weeks to send a written objection if they do not agree to the terms. So long as a majority of your creditors agree to the proposals (or do not respond in any way) then your trust deed will become protected, and all creditors – including those that objected – will be bound by its terms.

What happens if my trust deed does not become protected?

If you are not able to gain protected status for your trust deed, this does not mean you cannot carry on with the arrangement as it is. However, an unprotected trust deed does leave you open to legal action from creditors should they decide that they want more money from you than what you are currently paying or decide to apply to have you sequestrated (made bankrupt).

Alternatively you may wish to consider other debt relief solutions which may be more appropriate to your circumstances. Options could include a Debt Arrangement Scheme (DAS) or voluntary sequestration.

What is the role of the Trustee in a trust deed?

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 are clear as to the details of any repayment deal that has been struck.

You will make your agreed monthly payment direct to your Trustee. They will take their fee from this payment before dividing the rest among your creditors on a proportional basis depending on how much you owe them. Your Trustee will typically act as the middleman between yourself and your creditors meaning you will no longer have to have any contact with them.

How will a trust deed affect my credit rating?

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, potential lenders and creditors may view you as a risk when it comes to taking on unsecured debt.

However, if you are already in a tricky financial position, it is likely that your credit rating has already suffered and therefore you may find it difficult to access any additional 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.

For many people, taking on more debt is the last thing on their minds after completing a trust deed. During the time of being in a trust deed you will have learned a lot about money management and how to live within your means without relying on credit cards or overdrafts. It is advised that you take these lessons forward with you and limit your reliance on credit as much as possible in your life after a trust deed.

When your Trustee is drawing up your trust deed agreement, they will take into account any assets you own and identify the level of equity there is. When it comes to your home, equity is defined as the difference between the value of your property and the amount you owe on your mortgage or secured property loan. Your property will be valued at the start of your trust deed and this figure will be fixed. That means that even if your property has increased in value by the time your trust deed ends, it will still be the original figure which is used to determine your equity position.

It is highly unlikely that a trust deed would be recommended to you if this would require you to sell your home. If you only have a small amount of equity in your property, you may be able to exclude this from your trust deed meaning it would not be considered an asset. Your Trustee will always aim to ensure that you can stay in your home and in the vast majority of cases this will be possible.

Depending on the level of equity, you may be asked to re-mortgage your property at the end of the trust deed in order to release funds; alternatively your trust deed may be extended by a further year should re-mortgaging not be an option.

How will I afford to live while my trust deed is in place?

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. Forcing you to pay an excessive amount towards your trust deed only increases the risk that you will fall behind in your contractual payments thereby meaning the creditor receives nothing. 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 paying back the money they owe.

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 Trust 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.

What happens if my circumstances change while I am in a trust deed?

As a trust deed typically lasts four years, it is likely you will experience changes either to your lifestyle or financial situation during this time. This could include redundancy, receiving an inheritance, a reduction in your working hours, or a promotion or pay rise. If your circumstances do change either for the better or the worse, you will need to contact your Trustee and let them know the details.

There is the potential for your trust deed to be amended to take into account these chances. If your financial position has improved you may be asked to contribute more to your trust deed; alternatively a reduction in your income may allow you to lower your monthly contribution amount or even take a short break from making payments at all.

What if I cannot afford to keep up with my trust deed payments?

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. A trust deed is a legally binding agreement, therefore it is vital you do all you can to keep up with the agreed monthly repayment amounts. 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.

It is not necessarily the case that your employer will find out 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 the details, although this does not necessarily mean you will lose your job as a result.

Some sectors and employers tend to take a dimmer view of insolvency than others. If you work in the legal or financial sector for example, you may well face questions about your decision to enter a formal insolvency arrangement. It is always best to check your employment contract first to understand whether you are likely to face disciplinary action as a result.

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 although this is only likely to be the case if they are searching for you specifically.

How does a trust deed affect me if I am self-employed?

There are no laws that prohibit anyone entering a trust deed from operating on a self-employed basis. It might make it more difficult for the terms of a deed to be agreed by all the necessary parties should your income be erratic or seasonal, but legally speaking self-employment is perfectly acceptable for the purposes of obtaining a trust deed.

A route out of unmanageable debt problems

A trust deed should not be seen as an easy way out of debt, but it does present a route out of a situation which has become unmanageable.

As with all issues around debt management and insolvency, it’s vital that you seek out the advice of an debt advisor who can help you find the best way forward depending on your individual situation. The team at Scotland Debt Solutions provide confidential support covering all aspects of personal debt and insolvency from our five offices located across Scotland. Get in touch with us directly to find out how we might be able to help you.

What are the next steps?

If you are considering a trust deed, talk to one of our knowledgeable and experienced advisors now.

They can make an assessment, based on your personal circumstances, and determine whether a trust deed is your best option. If so, we will work with you to draft an agreement detailing the proposed repayment plan and present this to your creditors.

Should a trust deed not be appropriate, we will talk you through the options which may be more suitable and help you understand the pros and cons of each. Rest assured that no matter the bad you feel your debt problems are, there is a solution out there. Take the first step today by contacting our team.