What is a Scottish Trust Deed?
A Trust Deed is a debt management solution for residents of Scotland, and it is an agreement legally binding between a debtor and creditors. The debtor agrees to repay an affordable amount during a specified period, and creditors agree to refrain from further action. It is similar to an IVA (available to residents of England and Wales) and is a formal type of debt management plan (DMP) based upon Scottish insolvency legislation.
This page features the Trust Deed questions we most frequently receive from Scottish residents seeking debt advice and the answers to each of them. If the information does not answer all of your questions, contact us to get a fast and courteous response.
The Trust Deed period usually runs for four years, and when it concludes, the debtor is not required to repay any balances for included unsecured debts further. Only a licensed Insolvency Practitioner can establish a Trust Deed. If enough creditors do not object to a Trust Deed, the agreement becomes protected, binding the creditors and the debtor to the arrangement.
Find Out If A Trust Dead Is The Right Solution For You
What A Typical Trust Deed Might Look Like
It takes only four steps to establish a Trust Deed using Jubilee Debt Management:
Step #1: Contact us so a debt management expert can discuss and review your financial situation. Our debt professional will request information about your income, expenses, and creditors. Based on this information, we can advise whether a Trust Deed is a suitable debt management solution. These details will also be used to calculate an affordable monthly payment for unsecured debts after accounting for living expenses and secured debt payments.
Step #2: Meet with our recommended Scottish insolvency practitioner professionals in person or by telephone. This expert will review the Trust Deed process, answer your questions, and provide you with a proposal. After reading and confirming that you understand this document, you will be asked to approve it.
Step #3: The appointed insolvency and debt management expert will provide the Trust Deed proposal details to your unsecured creditors. The information will also be made publicly accessible via the Register of Insolvencies. This allows your creditors to object to your Trust Deed within the five weeks allowed to them.
Step #4: If fewer than 50 per cent of creditors in number, or those representing less than one-third of the debt, an object within the five-week timeframe, your Trust Deed is granted legal protection (a “protected trust deed”).
You’ll then make the agreed payments during the Trust Deed period, and when the Trust Deed concludes, you’ll be discharged from the included debts.
Why Do People Use A Trust Deed?
A trust deed offers several benefits as a debt management solution. Monthly payments can be customized to the debtor’s financial situation and affordability. The Insolvency Practitioner is the Trust Deed’s contact person, providing knowledgeable assistance and support.
A Trust Deed provides the debtor with a defined date, including debts that will be repaid or discharged. With a Trust Deed in place, a debtor does not feel as much pressure from creditors regarding possible legal action.
Another attractive benefit is that a Trust Deed does not require court attendance. It helps consumers handle their debt without recourse to sequestration (bankruptcy). Some may find that a trust deed is less professionally damaging than bankruptcy. Homeowners are not necessarily required to sell their homes to enter a Trust Deed, though equity in such assets must be dealt with.
Why Is An Insolvency Practitioner Required For A Trust Deed?
Formal insolvency, like a Trust Deed, requires oversight by someone qualified and experienced. A licensed Insolvency Practitioner, or IP, is often also a solicitor or accountant; this person has the required knowledge and skills. The IP will prepare a Trust Deed that is in the best interest of the debtor and creditors, present this to the creditors, and oversee the Trust Deed through to completion.
Why Would A Creditor Want To Accept My Trust Deed?
Creditors may feel comfortable that the Insolvency Practitioner will prepare a Trust Deed that considers their interests in addition to yours. They realize they may receive more money from a Trust Deed than through an alternative debt management solution like sequestration. A Trust Deed also allows them to avoid legal action, which can be time-consuming and expensive.
How Much Does A Trust Deed Cost?
The cost of a Trust Deed is typically based on how much the debtor can afford after daily living expenses and priority debts are paid. Therefore, your budget will be restricted when you’re in this type of debt management arrangement.
If creditors think a debtor is spending too much on non-essential items, they may ask the debtor to reduce budgeted spending in these areas. To increase the money available, homeowners with property equity may have to release some equity from their homes.
Trust Deed costs and fees are deducted from the debtor’s payments. Before committing to a Trust Deed, the debtor knows how much must be paid based on their circumstances. Creditors are aware of how much they are likely to receive.
Once you stop paying your creditors directly, you will likely fall into arrears or further into arrears on your credit accounts.
Is Four Years The Standard Term?
Most Trust Deeds now last for four years, but there are exceptions. A Trust Deed period may be extended in certain circumstances.
As A Homeowner, What Can Happen To My Property With A Trust Deed?
If the IP determines that you have equity in an asset you own, you may have to release equity. If you’re a homeowner with equity, you must carefully consider how this amount will be raised, or your home may be jeopardised. The Trust Deed will only cover unsecured debts. Secured debts, like a mortgage, will not become included, so payments toward these must continue.
What Are The Consequences Of Defaulting On Monthly Payments?
The consequences of payment default vary. If failure to pay is not the debtor’s fault due to a pay decrease or temporary unemployment, the monthly payment figure may be reviewed and changed. The Trust Deed period could be extended so the debtor has time to make up for missed payments.
If payments were missed because the debtor is uncooperative, the Trust Deed might be terminated. This will remove the legal protection, and the debtor must find another debt management solution or repay the debts.
Where a trust deed fails, this might result in the contributions made being accounted for (partially or in full) by the trust deed fees. It might also result in the debtor becoming bankrupt.
After A Trust Deed Ends, What Happens?
Once the debtor has completed their obligations to their Trust Deed and the debtor has been discharged, the included debts are considered satisfied. Any covered outstanding liability is written off so the debtor will not have to pay it. Any debts that aren’t included in a Trust Deed will remain unpaid.
Does My Ability To Receive Credit Get Affected?
A trust deed does not result in an obligation not to take on further credit.
A trust deed is recorded on your credit file and will remain there for six years. It will significantly affect your ability to get credit and the terms upon which credit might be offered.
However, the fact that debts are cleared will also later be reflected in the report. If a Trust Deed had not been used, these debts could have remained or even grown. Therefore, though a Trust Deed damages the credit rating, the harm done by doing nothing or using a debt management solution for a longer period might have a longer-lasting effect.
The credit report should remove mention of the Trust Deed and the debts it covered six years from the effective date.