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“Trust Deeds are available in Scotland ONLY.”
A Trust Deed is a legally binding arrangement available to Scottish residents who have £5,000, or more in unsecured debts. The question is, is it the right debt solution for you?
Follow our comprehensive guide as we look at what a Trust Deed is, how a Trust Deed will affect your life and any other questions you might want to know about Trust Deeds.
A Trust Deed is a legally binding debt relief agreement for people who are struggling to pay their debts. The agreement is created by a licenced insolvency practitioner (IP) also known as a Trustee, and it is expected that during the 48 months term of your agreement, you ensure you make the affordable monthly payments agreed in your plan.
During the 4-year period of your agreement, all your belonging and property are controlled by your Trustee. The Trustee acts as an intermediary between you and your creditors. Their objective would be to pay your creditors as much of the debt as possible.
It is important to establish the difference between a Protected and an Unprotected Trust Deed, so you know which type is the best solution for you.
A Trust Deed can become ‘protected’ if most of your lenders are happy with the terms of the Trust Deed. This means that the Trust Deed is compulsory on all creditors, and they can’t take any steps to recover their money.
However, when a Trust Deed is not ‘protected, it is not binding with all your lenders. This means that they could still take further action to recover the money owed to them.
In this guide, we will be focusing mainly on a Protected Trust Deed.
To be eligible for a Trust Deed you will need to meet the following criteria:
As debts can already put on a strain on your financial situation, it is good to know that with a Trust Deed you do not need to pay any upfront set up fees, however with anything there are costs involved in using this process.
Fees that are included in your monthly arrangement include the following:
The Insolvency Practitioner who deals with your trust deed is called your Nominee. Your Nominee’s job will be to agree on a proposal with your creditors, so therefore it is valuable to understand their work in more detail:
The work of the Nominee includes the following:
Your nominee will charge a Fixed Administrative fee for this work however this amount varies depending on how much is paid as part of your Trust Deed.
After your creditors have accepted your trust deed, your Insolvency Practitioners role will alter from Nominee to Trustee. Your Trustee plays an important role in the lifespan of your Trust Deed. Their duties include the following:
The Trustee will charge a ‘Trustees Realisation Fee’ for supervising your Trust Deed. This fee will normally be capped by creditors at between 15%-20% of the money paid into the Trust Deed.
When you take out a protected trust deed in Scotland, generally debts that are classed as unsecured can be included. They consist of some of the following:
Although your debts may include the above listed, this does not automatically ensure you meet the criteria for a Trust Deed. A Trust Deed’s requirements also need to consider other factors such as your affordability. Check out our Eligibility Section for more details.
Debts that are not included as part of a Trust Deed is:
This is rather a complicated matter. Firstly, it is important to understand that there is no such thing as a Joint Trust Deed. A trust deed is an individual debt solution that caters for a single person’s debt.
However, if you and your spouse are both struggling with your finances then it is possible to take out a Trust Deed simultaneously which connect. This would mean that you would have to use a single household budget and income and make a single monthly payment towards your Trust Deed.
Consequently, like what was mentioned at the start you could run into a few issues which might make you consider things carefully:
Applying for a Trust Deed is generally very simple. Although you will get the assistance you need from your Trustee, it is crucial you know what the process is, so you aren’t going through the process with your eyes closed.
1. Application is submitted
Once you have accepted that you need help with your debt problem, you will need to first submit an application to start the process of getting a Trust Deed. It is important to find a reputable company that can help you with your Trust Deed application.
2. Finding out details about your financial situation
You will need to speak to an advisor who is trained to give advice on your current circumstance. It might be a good idea to get a better understanding of your financial position yourself. Download our handy budget planner so you have all the relevant information to hand in before your advisor calls.
3. Drafting a proposal
After speaking with your advisor, you will then need to work with them to draft a proposal. This is after considering your income, outgoings and your debt level. Your proposal will consist of your repayment plan to highlight what you can afford each month. As this is a legally binding document it is important to review your proposal before you sign it.
4. Register of Insolvencies
Once you have signed and sent your trust deed application, a notification is sent to the Register of Insolvencies to advertise your insolvency application.
This register is particularly useful for people you owe money to or creditors to view your application. They have this time to object to your application.
6. Protection of Trust Deed
If your creditors haven’t objected to your application, your trust deed will be approved. A notification will be sent to the Accountant in Bankruptcy to acknowledge your Trust Deed. This will then mean your Trust Deed is protected.
A Protected Trust Deed becomes protected your creditors will no longer be able to chase payments from you and interests and fees will also be frozen.
When creating a proposal during the Trust Deed process, your nominee will help you calculate your monthly payments.
Your monthly payments will be based on your disposable income. Your disposable income figure is based on deducting your essential living costs and offsetting this against your income. The amount that is left over will be used to pay your creditors.
It is important to understand that your essential living costs do not only include your mortgage, rent, utility bills and council tax. It can also consider travel expenses, car finance, childcare, food and even haircut and hobbies.
Your Trust Deed will typically last for four years if you have kept to the agreement and made the monthly payments. However, it is crucial to read the terms of your Trust Deed as in some cases this could last longer.
When you are discharged from your Trust Deed, your appointed Trustee will deliver you with a ‘letter of discharge’. This letter will be sent to the Accountant in Bankruptcy (AiB) and the Register of Insolvencies, where the record of your Trust Deed will be discharged.
At the end of your Trust Deed Term, any unsecured debt that you couldn’t repay during your Trust Deed will be written off. Thus, freeing you from the shackles of debt and money problems.
However, it is important to note that some debt won’t be written off such as student loans or court fines. You will need to speak to your Trustee on what these debts are in more detail.
We would all like to think that getting out of debt can be plain sailing. Although the prospect of getting a Trust Deed might seem like a step in the right direction, the hardest part is sticking to the agreement.
Sometimes a Trust Deed can fail. This is when you stop paying into your arrangement and your Trustee does not feel you can pay which will mean your contract could be cancelled.
There are repercussions if your Trustee terminates your Trust Deed. This will mean that you will no longer be protected from your creditors demanding payment from you. Also, any interest and fees on your debts will be unfrozen. In addition, your Trustee may petition for you to be entered into Sequestration. Find out more about Sequestration here.
Before you get into this position, talk to your Trustee first and see if there is a solution you can approach together. Remember your Trustee is there is help, so use it.
For many, their house is a very valuable asset. With a Trust Deed, your assets are used for the benefit of your creditors. Quite often your house is used in a Trust Deed agreement with your creditors to release equity which in turn can help to pay the money back to your creditors.
To stop you from selling your house, your Trustee will give you advice on how best to approach this. In certain circumstances, they will give you the option to ask another family member to buy out the interest in the property or arrange a re-mortgage to release some equity from the property.
Losing your home also depends on whether your Trust Deed is protected or not. As an unprotected trust deed does not provide you with legal protection from your creditors, a protected trust deed does. This can work in your favour as a Trust Deed which is granted protected status may exclude your home from the agreement. This is usually when you have very little or negative equity in your property.
However, having no equity does not mean you have a ‘get out of jail free’ card, instead, if there is less than £5000 of equity then you will be required to sign over administration of your home to your Trustee. This is because your property may be worth more at the end of the Trust Deed arrangement. At end of a Trust Deed, a valuation will be conducted on the property at the end of your Trust Deed to see if the level of equity has increased.
If you need your car for work, taking the children to school or you are disabled, then you can usually keep your car. A Trust Deed is not only put in place to ensure that you pay your creditors but also assist you in becoming more financially stable in the future.
However, it is important to note that a car is considered an asset and you may need to extra payment liability if your car is worth more than £3,000. Extra payment liability might include:
There are other rules which apply regarding cars in a Trust Deed, so ensure you ask your Trustee any questions you may have regarding this.
An employer is unlikely to find out if you are in a Trust Deed.
You only need to inform your employer if your profession states that you are not allowed to enter any form of insolvency arrangement. Professions such as handling money or are in a position of trust, like solicitor or police, will require you to stipulate that you have entered a Trust Deed.
It would be a good idea to check your employment contract if you are thinking of getting a Trust Deeds as it could have an impact on your job. Although it is highly unlikely you could lose your job, it is still important to speak to someone so that you can gauge a better understanding of what you need to do best.
Yes, a Trust Deed does affect your credit rating because unfortunately, you are breaking the contractual terms of your credit agreement.
A record of your Trust Deed will stay on your credit file for 6 years, however, if you are already thinking of applying for a Trust Deed, your credit score will be low anyway.
Even after your Trust Deed has been discharged, which is typically after 4 years, the record of your Trust Deed will stay on your file for a further two years.
Even after you receive your discharge certificate for your Trust Deed, rebuilding your credit rating will not be a seamless process because lenders will be reluctant to give you credit, especially as you have had a negative history with credit. However, there are practical ways to try and improve your credit rating. Find out more here.
It is important to inform your Trustee if your financial circumstances change during the Trust Deed. Quite often a loss of a job or an illness can put your Trust Deed agreement into jeopardy, however, honesty is always the best policy, so explaining your situation to your Trustee as soon as this happens can allow your Trustee to assist you in the best way possible.
Depending on your circumstances, your Trustee could offer you the following options:
However, a Trustee might not be able to offer your assistance if:
Taking out a Trust Deed is not a decision to take lightly, however it does offer you’re a huge number of benefits. Unfortunately, it not going to give you a winning lottery ticket to pay off your debts, but it will allow you to make things more manageable for you. Let’s look at some of the advantages below:
Generally, your Trust Deed payments will last for 4 years. At the end of the term, any unsecured debts still outstanding will be written off. Allowing you to start making steps to having some financial independence. It is however worth noting that in some cases your Trust Deed could last longer so speak your Trustee regarding this.
Sometimes, having so many payments coming out of your bank account can be very overwhelming and it is easy to lose track of what and when to pay. With a Trust Deed, you will only have to pay a single monthly payment, which you can afford. It is important to emphasise the affordable part of your monthly payment as it is often refreshing to hear that you are paying off your debts, but it doesn’t feel like it is imposing on your daily living expenses.
Being inundated with regular phone calls and letters from your creditors can cause a lot of stress and anxiety. However, once your Trust Deed has commenced, your creditors will no longer be allowed to take legal action against you regarding your debts. Your creditors will need to liaise with your Trustee instead. This will mean you will be legally protected from your creditors getting a wage arrestment against you or charging against your property.
You can feel rest assured that your debt amount will not increase because another benefit of taking out a Trust Deed, is that your lenders will not be able to charge you fees or interest on your accounts once the Trust Deed is put in place.
Unlike other debt solutions, HMRC will usually agree to your Trust Deed proposal including any tax or personal debt you may have. This is especially beneficial to business owners that are struggling with debt.
You are not barred from certain types of employment or public office as you would be under bankruptcy
Like everything, a Trust Deed can also come with its disadvantages. A debt management solution is never a decision to take lightly especially when you are signing contracts and it is legally binding, so make sure you do your research when committing and get good expert advice. To help you along a little but we have compiled some disadvantages of a Trust Deed.
When you start a Trust Deed, your name and address will be listed on the Scottish Insolvency Register, which is managed by the AiB (Accountant in Bankruptcy). This will mean that anyone can search for your details on the internet and find out you are in a Trust Deed.
When you start your Trust Deed, you are entering into a legal contract which means that if for whatever reason you are struggling to pay your agreed monthly payments, you cannot simply change and reduce the amount.
If your circumstances do change and you are unable to make your payments, then your Trust Deed might fail, and you maybe be forced into bankruptcy.
A Trust Deed will adversely affect your credit rating. It will stay on your credit file for 6 years and even then, rebuilding your credit rating will be a slow process.
As part of your Trust Deed agreement, you will have to release 100% of your share in any equity of your property. This is done to allow you to pay a proportion of your debt back to your creditors. It is often quite a difficult decision for many people as for many this will be their only asset which can also feel quite emotionally soul destroying. However, taking out a Trust Deed you will have no control over this.
You can’t be a company director of a limited company (there may be exceptions in your Trust Deed contract) and also you may not be able to carry on running your own business. Your Trustee may assign someone else to run your business or you may be forced to sell your business.
A Trust Deed might not be the right solution for your needs, so it is paramount that you consider looking at other debt plans.
Other options include:
A Debt Arrangement Scheme (DAS) is one of the main debt solutions used by people in Scotland. Introduced in 2004, it is managed by an independent Money Advisor and controlled by the Scottish Government.
If you live in Scotland and are having trouble paying back your debts, then a Debt Arrangement Scheme could be the right solution to your debt problems.
A Debt Arrangement Scheme (DAS) can help by allowing you to pay off your debts over time without the pressure of creditors calling or taking legal action against you. Its primary objective is to try and find an affordable way for you to deal with your debt problem.
Find out more here
Sequestration is a debt solution was is only applicable in Scotland. It is a form of insolvency and is beneficial to someone who has no means of paying off their debts.
Unlike other forms of debt solutions available for Scottish residents, the main difference with sequestration is that the assets which a person owns (house, car) could be sold to pay off the debts.
Read our comprehensive guide as we talk you through what sequestration is, whether you meet the criteria of sequestration and what you need to do if you find yourself sequestrated.
Find out more here
An Individual Voluntary Arrangement (IVA) is a formal and legally binding agreement between you and your creditors to pay back all or part of your debts over a period of time at an affordable rate.
Set up and managed by an Insolvency Practitioner (IP), an IVA is a form of insolvency which allows you to write off up to 80% of unsecured debt and offers an alternative to bankruptcy.
Find out more here
A debt consolidation loan is one way of combining multiple debts into a single monthly payment. Consolidating debt helps some people pay off credit cards, store cards and personal loans in a more manageable way.
The convenience of paying one monthly payment rather than multiple payments is often what attracts debtors to this type of debt plan, however with anything, debt consolidation comes with risks, so it isn’t for everyone.
Find out more here
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You will be contacted to discuss your circumstances.
You decide if an IVA is best for you!