A Trust Deed agreement is a formal solution to your debts, and it is intended to take away the anxiety and stress of multiple unmanageable debt payments, by combining them into a single regular affordable repayment.
A Deed of Trust offers protection from any legal action initiated by your creditors, and protects any assets, including your home, from the threat of repossession. Trust Deeds can be voluntary, but it is only when they become protected, binding both parties to follow the Deed, that you are offered any type of legal safeguard.
Overseen by the Accountant in Bankruptcy (AiB) a Scottish Trust Deed is a secure and formal alternative to bankruptcy, used in Scotland. An individual, or a partnership, should be resident in Scotland for at least 6 months prior to any application. Essentially, a Trust Deed transfers the debtor’s estate to a trustee for the duration of the Deed, for the benefit of the creditors, and is often called a Scottish Trust Deed.
A Trust Deed could be a successful route for individuals facing debt problems, as it safeguards the debtor from any legal enforcement usually attached to the various other types of debts, thus preventing stressful letters and bailiff action.
Once the Trust Deed is protected (see below), whilst it does not reverse any action taken before its initiation, such as bank arrestment, or earning, your trustee can negotiate the lifting off any arrestment. In certain extreme circumstances, your house may have to be sold, but your trustee can negotiate Trust Deed arrangements enabling you to keep your property (see below).
Voluntary Trust Deed
A voluntary trust deed is an agreement made between a debtor and their creditors to repay all, or part, of what they owe. It transfers the debtor’s rights to their possessions to a trustee. They will be sold off to contribute to the repayment fund, enabling a faster payment; however, in practise, this does not necessarily speed up the repayments. There is a set period that repayments should not take more than, and this is normally set at 48 months.
A voluntary Trust Deed is not binding on creditors unless they agree to its terms, which means it then becomes protected. Trust Deeds should only be agreed upon if there is an intention to have the terms presented to creditors for protection.
Protected Trust Deed
A protected Trust Deed is binding on all creditors, and providing the debtor complies with the terms of their Trust Deed, creditors are prevented from taking any further action to pursue the debt or to make the debtor bankrupt.
This type of Trust Deed prevents the debtor from applying for their own bankruptcy or taking part in the Debt Arrangement Scheme. It should be noted that if a debtor acquires any new debts after they sign the trust deed, they will not be protected from action by their new creditors. There is a £5,000 minimum level of debt before a trust deed can become protected.
The appointed trustee in a Trust Deed must be a qualified insolvency practitioner. This practitioner is regulated by law and must be a current member of an approved governing body. However, the court may appoint an officer for you, instead, or there maybe an insolvency accountant available. Whoever actually oversees your Protected Trust Deed has responsibility for explaining everything to you, and ensuring that you understand the consequences.
Typically, creditors get paid with disposable income, but if that does not cover the amount, other assets may be liquidated, adding to the sum. Social security benefits, such as Universal Credit and Personal Independence Payment (PIP) could be looked into whilst examining your existing financial scenario. This assessment usually takes place at the time of Trust Deed application. However, the contribution paid back would not be removed from these funds.
It should be noted that while your property is safer under a Protected Trust Deed than a bankruptcy order, your Trustee could, in extreme circumstances, look to release any available equity through remortgage, or if you are unable to remortgage, by selling your house. If the house is jointly owned, and the other party does not agree to the sale, your trustee can ask for a ‘Division and Sale’ order which releases your share of any equity. Any assets that are not disposed of will be returned after the Trust Deed is concluded.
What are the consequences of signing a Protected Trust Deed?
When signing a Trust Deed, the trustee, an officer appointed by the courts, or an insolvency accountant should make you aware of several points, helping you to understand exactly what you are signing and their own responsibilities throughout the proceedings.
Before you sign, your trustee must:
· Give full and frank advice about the conditions and consequences of signing a Trust Deed.
· Explain fully all of the alternatives to a Deed of Trust, including bankruptcy and the Debt Arrangement Scheme (DAS).
· Give you a up to date copy of the Scottish Government’s Debt Advice and Information Package (DAIP)
- If you sign a protected Trust Deed, it will affect your credit rating and could also prevent you from doing some jobs. Should you fail to comply with any of your obligations under a Trust Deed, your trustee can ask the court to make you bankrupt.
Conditions of Protected Trust Deeds
Under a Trust Deed, there are certain conditions that you must adhere to:
- A voluntary Trust Deed is not binding on creditors until they agree to its terms, thus making it protected.
- Trust Deeds should only be agreed if there is a definite and obvious intention to have the terms presented to creditors for protection. If there is any doubt in this matter, the Deed need not be agreed on.
- Secured creditors can still take action, attempting to take possession of your home if you fall behind with mortgage, or Trust Deed, repayments. You should be very careful not to allow this to happen.
- A protected Trust Deed stops you applying for your own bankruptcy order, or for a debt payment programme under the DAS.
- If any new debts are taken on after a Trust Deed is signed, you will not be protected from legal action by these new creditors, and if you default on their repayments, they can come after you, potentially forcing the sale of your property. This will have major repercussions on the outcome, and completion, of your Trust Deed arrangement.
- You can choose who your trustee will be – although you must adhere to the above conditions. A trustee will set out a fixed administration fee. He will also include a percentage of the funds collected for the Trust Deed. These fees will be paid from the money gathered by the trustee during the Trust Deed only, and should not be from a separate account, or source.
- After signing a Trust Deed, your trustee will prepare a notice for publication in the Register of Insolvencies. This is a public record which anyone can access and means the Trust Deed will come to the notice of organisations like banks and credit reference agencies. This may prove to be an issue if you apply for a mortgage, wish to rent a property, or receive any other type of credit at a later date.
- You can request that your home is excluded from the Trust Deed, should the secured lender agree. If creditors do not object to the protection of the Trust Deed, you will keep control of the equity in your home. The rest of your assets pass to the trustee as normal, including any new assets acquired during the term of the Deed.
- If a Trust Deed is unsuccessful in becoming protected, creditors may be able to make you bankrupt – your trustee needs to negotiate around this for you.
- At the end of the Trust Deed, you will be discharged from all your Deed debts, providing the trustee considers that you have met your obligations, and you will be granted a certificate of discharge.
- The trustee will apply to the Accountant in Bankruptcy (AiB) for your certificate of discharge. Once it is granted, creditors will not be able to pursue you for any money owed prior to the signing of the Trust Deed. Your discharge will be recorded in the Register of Insolvencies. This is a publicly accessible statutory register regarding the insolvency of individuals and businesses in Scotland.
How much does it cost to start the Trust Deed process?
Before anything can be agreed and signed for, the trustee must give you an indication of the amount they will charge you for the complete process.
Your trustee will charge a fixed administration fee, but there will also be an extra cost that is based on a percentage of the debt collected via the Trust Deed. This fee is for any work carried out during the course of administering the Deed.