If you are a Scottish resident, a Trust Deed could provide a solution to control any unmanageable debts.
A Trust Deed allows an individual to make a formal proposal to their creditors to clear their outstanding unsecured debts, although at an amount which is lower than what they actually owe. All creditors are circulated with the proposals and, provided that any creditors who have claims totalling more than one third of the debt vote against the proposal, the Trust Deed becomes a protected, legally binding agreement.
Topics covered in this article:
- How does a Trust Deed work?
- What are the advantages of a Trust Deed?
- Will I have to give up some of the equity in my home?
- How do I know if a Trust Deed is right for me?
How does a Trust Deed work?
A Trust Deed consolidates all of your unsecured debts including credit card, store card and personal loans, and consolidates all of your debts into one single, affordable monthly payment over a period of 36 months which is then shared amongst your creditors.
The amount payable is carefully calculated after assessing the debtor's assets, income and living expenses and determining what they could reasonably afford to pay. This helps to ensure that the debtor never gets into any arrears or misses paying any of their priority commitments such as their mortgage or rent, car finance or utility bills.
Trust Deeds are a debt solution available to Scottish residents that, much like an IVA, forms a contractual agreement between a debtor and his/her creditors.
Available only to Scottish residents, a trust deed usually lasts for three years and, overseen by a licensed insolvency protection, forms a final debt settlement upon completion of the agreement.
1. The start of a trust deed.
To start a trust deed, you will be required to discuss your financial situation with a licensed insolvency practitioner (your Trustee). The practitioner will require information about your debts and whom you owe money to, as well as your current monthly income and outgoings. From this, you will both come to an agreement as to how much you can afford to repay each month whilst still paying your regular living expenses.
2. Contacting your creditors.
Once you have agreed and signed a trust deed with your insolvency practitioner, the Trustee will write to your creditors with details of the trust deed. If more than two thirds of your creditors agree to the terms, then it becomes a protected trust deed.
3. The protected trust deed.
Protected status legally prevents your creditors from taking any further action against you and also freezes any interest charges.
Throughout the life of trust deed, you will make the agreed monthly repayments to your trustee whilst continuing to pay your regular living expenses (mortgage or rent, utility bills, etc). Any correspondence that your creditors make with you should be done through the trustee.
At the end of the three year period, provided that it is completed as per the agreement, the trust deed is considered to be full and final settlement of the debt.
What are the advantages of a Trust Deed?
- Trust Deeds provide several benefits for those people struggling to keep up with their debt repayments.
- A Trust Deed will end any threatening letters or payment demands from your creditors. Instead, all correspondence between you and your creditors is handled by the trustee.
- A Trust Deed is usually more flexible and costs less to administer than sequestration (the seizing of property).
- Trust Deeds also allow the debtor to retain their job or business, even if they hold a position in public office or a company directorship whilst self-employed debtors can still continue to trade during the Trust Deed period.
Will I have to give up some of the equity in my home?
As a condition of a Trust Deed, creditors are entitled to receive any equity that you may have in your home or any other property. However, there are mechanisms that can be put in place to protect your home such as "buy-back" agreement.
How do I know if a Trust Deed is right for me?
Trust deeds are only available to Scottish residents who meet the necessary criteria. To find out if a Trust Deed is right for you, or to find out about other possible debt solutions, use our free debt calculator to get instant advice.