Reviewed 5th December 2019
If you are a Scottish resident in financial difficulty, you may have entered into a Trust Deed in order to restructure debt repayments to creditors. A Trust Deed is a fixed voluntary agreement made between the debtor and creditor, with the help of a trustee. Debt is broken down into smaller, affordable instalments, typically lasting up to four years. A Trust Deed can be used for debts in excess of £5,000, but if the scale of the debts is significantly larger, you may have to consider a Debt Arrangement Scheme.
Prior to the Mond ruling, the manner in which PPI compensation was distributed amongst parties differed. If an individual discharged from a Trust Deed received payment from a successful PPI claim after the final distribution had been made, the funds would be allocated to the creditor. This would occur even if the Trust Deed had been discharged.
The recent Mond ruling now protects debtors as they will be able to retain PPI payment and assets after a Trust Deed has been discharged.
The Supreme Court recently issued a judgment in the appeal case of Dooneen Ltd (t/a McGinness Associates) and another v Mond. The debtor in the case was Dooneen Ltd and the appellant was Mr Mond who disputed entitlement of PPI compensation after final distribution.
The dispute in question was whether the debtor was entitled to the PPI compensation after the Trust Deed had been discharged and final distribution was made. The appellant argued that the final distribution had not been made as the assets of the debtor were not exhausted, nor was the creditor paid in full. As a result, the appellant argued that the PPI compensation should be distributed to the creditor.
As the existence of the PPI claim was not apparent at the time of final distribution, nor was the compensation deliberately concealed, Lord Reed and four other justices ruled in favour of Dooneen Ltd. As a result, the debtor was able to retain the PPI payment.
The judge also said that proper clarity should always be exercised when a final distribution is made by the creditor to avoid consequences as such and to eliminate ambiguity around the status of the Trust Deed, including the discharge date of the Trust Deed.
The full Supreme Court judgment can be found here.
This Supreme Court judgment clarifies uncertainties deriving from previous cases. It establishes that the creditor is not entitled to assets which are discovered after the final distribution has been made in relation to the Trust Deed, or after a Trust Deed has been discharged.
If you have any questions on how a Trust Deed works, please get in touch with the Scotland Debt team. We have been helping Scottish residents with debt problems since 1989, including sequestration and insolvency. Our debt experts can guide you through the process and help determine the best options. Please contact one our team members to arrange a free same-day consultation at any of our four offices in Scotland, or a location of your choice.
The UK’s financial services regulator has told banks and other lenders they ought to give their customers a break from repayments if they need one as the coronavirus crisis unfolds.
The Scottish government has taken a series of steps that it hopes will help to ease some of the financial pressures being felt by people with debt problems across the country.
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.