Reviewed 5th December 2019
Trust deeds are formal insolvency procedures that are available only in Scotland. They offer a viable alternative to bankruptcy if you’re struggling to repay unsecured debt, and generally last for three to four years.
Trust deeds work by transferring your assets to the trustee, and making a single affordable monthly repayment that is then distributed to creditors included in the agreement. Here we look at various aspects of trust deeds that can help you decide whether this personal insolvency process would work for you.
You may be eligible for a trust deed if you:
When you agree to a trust deed you must transfer most of your assets to the control of the trustee, who will then sell them for the benefit of your creditors. If you’re a homeowner with equity in your property, you may also be required to release this to increase creditor returns. The insolvency practitioner assesses your income and expenditure and arrives at a monthly trust deed contribution after deducting essential living costs, including mortgage/rent payments, utility bills, and food.
If your trust deed isn’t protected it means interest can be added to your debt. It also leaves you open to legal action by creditors who haven’t agreed to the arrangement, so this is an important aspect of how trust deeds work and their future success. Hopefully a sufficient number of creditors will agree to the terms of the trust deed when the insolvency practitioner distributes the proposal, but there are cases where the arrangement has to remain unprotected:
A trust deed is designed to help you repay a proportion of your unsecured debt. This could include credit and store card debt, bank overdrafts or personal loans, payday loans, and catalogue debt. It doesn’t include secured loans such as your mortgage, or hire purchase agreements. If you have these types of debt, repayments are included in the calculation of your essential living costs. This is what makes trust deeds affordable, as your priority payments are budgeted for prior to the trust deed repayment.
One of the benefits of entering into a trust deed is that any debt remaining at the end of the term is written off, leaving you debt-free. Your creditors will be aware of the proportion of debt they’re likely to recoup, and cannot pursue you any further for this money once the arrangement comes to an end.
The trust deed remains on your credit record for six years from the start date, even though its term is shorter, and is likely to affect your ability to borrow during this time and potentially beyond.
For more information on how Scottish trust deeds work and whether they’re an appropriate solution for you, contact our experts at Scotland Debt Solutions. With five offices around Scotland we can quickly assess your financial situation and establish your best options. Please call to arrange a free consultation.
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The number of Scots struggling to keep a roof over their heads is sure to rise in the coming months as the impact of the pandemic continues to be felt.
Applying for a trust deed has been on my mind for some time but I’m concerned that all creditors may not agree to my trust deed? What if one of them doesn’t agree?
Yes, although a Trust Deed is not a court process the creditors you have made defaults with are likely to notify the credit reference agencies that you have missed payments. There will be an entry on the Register of Insolvencies that you are subject to a Trust Deed.
A Trust Deed can be setup very quickly. Once you have discussed your financial situation in full with an Advisor and taken time to consider that this is the most appropriate option taking all factors into account. The Trust Deed document and accompanying paperwork can be signed which then gives the Trustee the relevant powers to act on your behalf. The Trustee will make contact with all your creditors and from that point you can stop making payments to the individual creditors and pass all correspondence for the Trustee to deal with. Thus relieving you from the pressure instantaneously.
The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level.
There are no initial setup or additional hidden costs in a trust deed. The Trustee’s fee’s and outlays for administering your trust deed are met from the contributions you pay in on a monthly basis or/and from the assets which may have to be realised in your Trust Deed. The Trustee is paid prior to making a distribution to your creditors. The Trustee’s fees are broken down into three categories, fixed fee, percentage of realisations and costs and expenses associated with the Trust Deed.
A protected Trust Deed is binding on your creditors. It means that if you comply with the terms of your trust deed then the creditors cannot take any further action against you to recover any debts you might be due to them. They cannot arrest your earnings or petition for your sequestration whilst you are subject to a Protected Trust Deed. Unlike an ordinary Trust Deed which is not binding on your creditors. If when presented with your Trust Deed Proposals more than half in number or one third in value of creditors object to your Trust Deed then it will fail to reach protected status.
The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level. In addition to this the Trustee will explain at the outset of the Trust Deed that should you have any change in circumstance which will affect your ability to make a contribution you must update him with immediate effect. If you have a change in circumstance and notify the Trustee of this providing evidence to substantiate your change in circumstance. The Trustee will take all factors into account before making a decision as to whether to reduce, suspend, stop or infact increase your contribution. It may be depending on the circumstance that your Trust Deed period is extended or shortened or that you are able to suspend the payments until such time as your Income position improves.
The main differences between and IVA and Trust Deed are that one is an English Debt Relief process and the other is a Scottish debt relief process. An IVA can only be accessed by English and Welsh residents whereas Trust Deeds are only available for Scottish Residents. In an IVA you must have minimum unsecured debts of £15,000 whereas a Trust Deed is a minimum of £5000. The duration is also slightly different in that an IVA generally lasts for sixty months whereas a Trust Deed lasts for forty eight months.
I am a single mother of two children with a number of debts and loans, including some spiralling payday loans that are stressing me out. I have looked into debt management plans and trust deeds and it seems as though the trust deed is the best option but I’m not sure whether I can consolidate all my debts into one monthly payment? Can loans be included in this?
Our Scottish based team can help advise you on your debt problems.