Reviewed 5th December 2019
Protecting their home is a major issue for anyone in debt, and essentially there are two options when it comes to Scottish Trust Deeds:
If you decide to include your property asset(s), the Trustee will have it valued and you will need to transfer it to their control. Should your property be mortgaged, the amount of equity available for use by the Trustee is arrived at using your lender’s mortgage redemption figure.
A lump sum intended to repay part of your debt is then agreed between the Trustee and your creditors.
When this sum of money is required, which is generally at the end of the Trust Deed period, you may have to sell your property or remortgage it. Alternatively, you might be able to obtain a Mortgage to Rent whereby a landlord buys your property and rents it back to you.
Other options include a third party ‘buying out’ the Trustee’s interest in the home – this could be a family member or friend wanting to help out, or make an investment in property. Having done this, your Trustee will not be allowed to ask for further payments using your home, even if its value has increased. Some Trustees also offer extended periods of time to pay this extra sum. If there is little or no equity in your home, you may still be required to transfer it to the Trustee, who will have it valued again at the end of the Trust Deed term (usually four years), and decide on how to progress at that point.
Although you may not be required to sell a second home, all properties owned by you will be factored into a Protected Trust Deed, as they represent part of your ability to repay outstanding debts. Creditors will expect all assets to be taken into account and form part of the repayment calculations. Although this includes all property assets in this country or abroad, whether you will have to sell your second property depends on the situation at the end of your Trust Deed.
If your home or other property assets are jointly owned, the Trustee will require the consent of your co-owner and any other people with the right to live there, before proceeding with a Trust Deed.
If your co-owner refuses to allow the property to be included as part of a Protected Trust Deed, your Trustee has the right to enforce the sale of the property, and divide the value with the co-owner. This process is called a ‘division and sale,’ with your part of the proceeds being used to repay creditors.
Scotland Debt Solutions has offices throughout Scotland, and can advise on the transfer of property assets prior to a Trust Deed being negotiated with your creditors.
A long-term personal debt crisis is an inevitable consequence of the Covid-19 pandemic unless urgent action is taken to support people in financial trouble.
Food banks across the UK are expecting to see a significant rise in demand this winter as compared with the same period of last year.
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.