A Scottish trust deed agreement is a formal arrangement between you and your creditors, which will enable you to repay what you can afford to enable you to clear your debts. The arrangement is designed to assist in the repayment of unsecured debts such as credit cards, loans and overdrafts which are no longer affordable to repay.
A trust deed is a form of insolvency, so to enter into an arrangement your level of debt needs to outweigh the total value of your assets. A trust deed in Scotland is often considered a Scottish IVA, as it similar to an individual voluntary arrangement (IVA) in the rest of the UK, although there are different benefits and risks.
A Scottish trust deed is a brilliant arrangement which is designed to put you back on the path to financial stability. The trust deed solution is governed by the Protected Trust Deed (Scotland) Regulations 2008 and covers the provision of a formal repayment proposal presented to creditors through an insolvency practitioner.
Who could a trust deed in Scotland help?
If you are in debt a trust deed Scotland could provide the ideal solution. A trust deed agreement is designed for people who have taken out too much credit and are struggling to meet the monthly repayment demands. Every year in Scotland thousands of people benefit from trust deeds, especially those who have over committed to debt repayments.
To sign a Scottish trust deed, you must satisfy the following criteria:
” Currently live in Scotland or have lived there within the past 12 months.
” If you do not live in Scotland, you may meet the criteria if you have a place of business in the country.
” Owe debts of more than £5,000.
” Are able to commit to a monthly repayment amount or own assets which will allow you to repay a minimum of 10p to every £1 owed to the creditors.
” The debts you owe are greater than your assets, so that you can now be classed as insolvent.
How does the trust deed agreement work?
The majority of unsecured debts can be included in a trust deed, including; bank loans, payday loans, credit cards, store cards, overdrafts, council tax arrears and HMRC bills for people who are self-employed. Secured debts such as; mortgage arrears, hire purchase arrangements, fines issued by the court, student loans and crisis loans from the social fund cannot be included.
The previous repayment amounts will be replaced with a single monthly repayment, which is based on a detailed affordability assessment. As part of the arrangement you will be required to repay a set amount each month to your trust deed creditors in the UK. The trust deed usually lasts for 4 years and once complete any qualifying outstanding debts will be written off and you will be completely debt free.
All trust deed creditors are bound by the formal arrangement, so the creditor will not apply further interest, overdue charges or proceed with any legal action. At the end of the trust deed agreement once all repayment commitments are completed you will be discharged from repaying any outstanding unsecured debts within the trust deed.
What are the advantages of a trust deed agreement?
By establishing a trust deed you no longer have to carry the burden of mounting debts and high levels of repayments every month. Instead, a licensed insolvency practitioner (IP) will liaise with your creditors on your behalf to arrange affordable repayments. There are many other benefits to entering into a Trust Deed Scotland, such as:
” Retaining ownership of assets such as a house and car, as long as the vehicle is worth less than £3,000.
” All interest and overdue fees on the outstanding accounts are frozen.
” Creditors are legally prohibited from contacting you with payment demands and they cannot take further court action to try any recover any of the date which was outstanding on the date the Trust Deed was signed.
” All outstanding debt at the end of the Trust Deed agreement is written off, so that you are debt free.
” Although a Trust Deed is a formal agreement, there is no need to appear in court.
” You will be debt free in just 4 years.
” There are no court proceedings involved in the arrangement of a Trust Deed.
” A Trust Deed will stop an earnings arrestment, if there is an arrangement in place it will be removed on the protection of the Trust Deed.
What are the disadvantages of entering into a trust deed arrangement?
It is important to weigh up every aspect of entering into a formal Trust Deed. The following disadvantages should be seriously considered:
” As with all debt solutions a trust deed is likely to affect your credit rating. Entering into a trust deed could make potential lenders view you as high risk, although once your trust deed is complete you will be able to rebuild your credit rating.
” You will not be able to take out any new credit during your trust deed period.
” A creditor is not legally obliged to accept your trust deed Proposal. For a proposal to be accepted at least 67% of your creditors need to agree with the terms laid out in the agreement.
” There are some insolvency practitioners which charge for arranging your monthly repayments, so it is important you choose the company wisely.
” It can affect the terms of your employment depending on the industry in which you are employed. As a form of insolvency, it can lead to dismissal in some professions such as the financial or legal services.
” Any surplus income beyond your essential living costs will need to be paid into the arrangement.
” If the trust deed fails, you will be at risk of bankruptcy.
” Your details will be held publicly on the Register of Insolvencies.
” If you own a home, you may be required to release equity to repay your creditors.
” You may need to sell any high value items you own which are not required for work or family life.
How will a Scottish trust deed affect my everyday life?
All forms of debt management can lead to possible impacts on your professional and personal life. The main impact will be the need to carefully budget your income for the period of the arrangement, as there will be restrictions on your spending to guarantee you can comfortably afford your monthly payments. Other impacts include:
” Your details will be added to the Register of Insolvencies (ROI), which is publicly accessible for a period of 5 years.
” Cancellation of any hire purchase agreements you have in place.
” Loss of employment due to insolvency.
The differences between a trust deed and sequestration (bankruptcy)
In Scotland the two most popular solutions to people with spiralling debt are a trust deed and sequestration, which is also known as bankruptcy. A trust deed usually lasts for 4 years, but in some cases bankruptcy could be finished in as little as 6 months provided all obligations are met. Although, the majority of bankruptcies will last much longer as the repayments will be based on the level of disposable income you have to make a contribution.
There are no upfront costs associated with arranging a trust deed, but the minimum debt level required is at least £5000. If you owe less money to your creditors, sequestration could be an alternative option which will demand debts of at least £1500 and an application fee of £200. Although, realistically for a small debt an informal debt management plan is usually a preferred option.
In a sequestration there are a variety of restrictions which will impact daily life over the course of the arrangement. For example, you cannot avail of credit of more than £2000, without first declaring the amount to the credit provider. There are restrictions which can impact which job you can do, if you are a director of a limited company you will need to resign, and you are no longer able to hold an official office position within the local authority or local government. There are fewer restrictions when entering into a trust deed, but it could still impact some professional positions.
How is a trust deed arranged?
The first step in arranging a Trust Deed agreement is to find a licensed insolvency practitioner (IP). The IP is often referred to as a trustee and will operate under strict regulations set out by the government, through their memberships with a relevant governing body.
They will be able to draft an initial trust deed for creditors to view, with the aim of proposing a schedule of payments over a given timeframe. At least 50% of the creditors, or a number of creditors which represent at least 75% of the total debt need to accept the proposal to make it a binding arrangement. If a significant majority is not reached the proposal will not be considered a protected agreement, so is not a legally binding document.
Once a trust deed is accepted you will be required to pay a monthly figure to the trustee in charge of managing the trust agreement. The trustee will then distribute the payment to each creditor based on the terms set out in the deed.
We are here to offer you free advice to help you decide whether repaying debt through a trust deed Scotland is a viable option for you. Our advice is free, confidential and we can help establish whether you may qualify for a trust deed. If you decide that a trust deed agreement is not suitable, we can also advise on other debt solutions such as a Scottish IVA, debt arrangement scheme (DAS) or the minimal asset process (MAP).