Reviewed 18th February 2020
If you’re having difficulty paying your debts and have assets or a regular income, you may qualify for a trust deed. A trust deed ensures that you are protected from legal action (such as being made bankrupt), and creditors will no longer be able to chase you for payment; all further communication with creditors will be done through your trustee.
It is your trustee’s duty to realise the value of your assets for the benefit of your creditors; for most people, their most valuable asset is likely to be their home. Unless your home has been excluded from your trust deed by agreement with your creditors, the property might be transferred to the trustee in order for equity to be released and the resulting money paid to creditors. Equity is defined as the value of your property minus the amount of any mortgage or secured loan.
Your trustee will advise you on this and will discuss the various measures available to avoid selling the house on the open market. They may, for example, allow another family member to buy out your interest in the property or let you arrange a remortgage at the end of your trust deed in order to release some funds.
Trust deeds can either be ‘protected’ or ‘unprotected’. An unprotected trust deed is done without the agreement of your creditors and does not provide any legal protection. A protected trust deed on the other hand, is legally-binding on all parties and prevents any further action being taken as long as the terms of the trust deed are adhered to.
If your trust deed has been granted protected status it may be possible to exclude your home from it, meaning its value will not be taken into account when quantifying your assets and therefore you will not be forced to sell it. You are only likely to be able to exclude your property if you have minimal or negative equity. You will only be able to exclude one property from your trust deed with the rest of your assets passing to your trustee as normal.
It is essential that you continue to make repayments on your mortgage on time after signing a trust deed; after all, your mortgage is a secured loan which means a trust deed cannot prevent repossession if you fall behind on your mortgage.
If you have no equity in the property, or if there is not enough to be released (less than £5,000 in equity), you would still be required to sign it over to the administration of your trustee. This is because in some cases a property may be worth more at the end of a trust deed arrangement than it was at the beginning. If there is currently little to no equity in the property then the trustee may arrange for a valuation to be conducted at the end of the trust deed to see if the value, and therefore the level of equity, has increased.
For further information on trust deeds, or to discuss other debt solutions which may better suit your personal circumstances, contact our expert team at Scotland Debt Solutions today.
As many as one in four Scottish renters or mortgage holders are worried about whether they’ll be able to cover their housing costs over the course of this year.
Rules relating to Debt Arrangement Schemes (DAS) have been relaxed in ways that should provide extra breathing space for Scots whose finances have been adversely affected by the Covid pandemic.
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.