Trust Deeds in Scotland

A trust deed is a form of personal insolvency and involves a formal agreement between an individual facing serious debt problems and their creditors. Trust deeds were created as an alternative to sequestration (bankruptcy) in instances where individuals find themselves unable to pay back large amounts of unsecured debts.

Only available in Scotland, trust deeds are designed to provide indebted individuals 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. Your Scotland Debt Solutions adviser can provide the debt help and advice you need to see whether a trust deed could help you.

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.

What debts can I include in a trust deed?

Trust deeds are designed to help you manage spiralling unsecured debts. Unsecured debts include some of the most common forms of borrowing such as:

• Credit cards
• Store cards
• Overdrafts
• Personal loans
• Payday loans
  
  You will also be able to include various other debts including council tax arrears, rent arrears, and overpayment of certain benefits. Any secured debts, however, will not be able to form part of your trust deed, meaning you will have to continue to pay these as normal in addition to your trust deed. Secured debts include mortgages and hire purchase agreements. You will also be unable to include student loans, court-ordered fines or penalties, or your obligation to pay child support if this has been ordered by the court.

What are the advantages of a trust deed?

• Your creditors will stop contacting you as all communication will be handled by your Trustee
• You can still have a bank account while in a trust deed, and in most cases it will not affect your job either
• You will usually be able to keep your home although you may have to remortgage or extend the length of your trust deed if you have substantial equity in the property.
• Creditors will not add any further interest or late payment fees onto your outstanding debt
• A portion of your debt is written off at the end of the trust deed as long as you have kept up with the monthly repayments.

What are the disadvantages of a trust deed?

• Not all debts can be included in your trust deed
• Unless creditors accept the proposal you put forward, your trust deed may fail to gain ‘protected’ status and you will be at risk of being made bankrupt
• You can also be made bankrupt if you fail to adhere to the terms and conditions of the trust deed or are unable to keep up with the monthly payments
• 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 altogether
• Your credit rating will be negatively impacted by entering a trust deed and will remain on your file for six years; however, it’s likely that your credit rating will already be damaged by missed payments at this point anyway
• Signing up to a trust deed will become a matter of public record as an entry is made on The Register of Insolvencies.

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), Debt Management Plan (DMP), 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.

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 becoming debt-free.

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.