A trust deed is a legal agreement that is only available to the Scottish residents. It is a voluntary agreement between your and your creditors to reduce debt payments.
It can be especially helpful in you’re struggling to pay off your debt within a reasonable timeframe. A trust deed normally lasts for 4 years and usually writes off your unsecured debts once it’s been completed.
If you live in England, Wales or Northern Ireland, a similar solution if offered through an IVA or Individual Voluntary Arrangement. Trust deed is a solution available for the residents of Scotland only. Though these two debt solutions share the same purpose and goals, they differ in terms of risks, benefits and the costs concerned.
What is Trust Deed?
A trust deed is a legal voluntary agreement with your creditors to repay the money that you owe. It turns over the rights and ownership of your belongings to a trustee. The trustees can sell your belongings or property to raise money. The proceeds will then be paid to your creditors. A trust deed usually includes a contribution from your income that persists for four years.
Your trustee needs to be fitted or eligible IP or Insolvency practitioners. IPs are directed by law and must be associated with an approved governing body.
Additionally, a trust deed cannot obligate your creditor unless they agree to its terms and stipulations. This means an ordinary trust deed is not binding unless with the approval of your creditors. Once agreed, the trust deed becomes protected.
What is a Protected Trust Deed?
When your creditor agrees to your offer, an ordinary trust deed becomes a protected trust deed. For a protected trust deed to commence, half of your creditors must at least agree to it or the creditors holding at least two-thirds of your total debt. If the creditor did not respond, it’s anticipated that they’ve accepted your proposal.
Once a protected trust deed is in motion, your creditors cannot consider further action to recover the debt such as commencing a court action to compel you.
Your payment is given to the trustee overseeing your protected trust deed instead of paying it to your creditors. The trustee will fairly distribute the payments to your creditors on your behalf.
The Costs and Fees of Trust Deed
You need to pay the insolvency practitioner or IP when managing a trust deed for you. The costs may vary depending on the company or organization.
The fees for your IP is usually included in your payments each month. Your monthly payments cover the administration costs along with running the trust deed. However, IPs may also charge for an upfront fee.
The Effects of Trust Deed
If determined that trust deed is the most appropriate solution to your debt problems, you must know both its benefits and risks.
Following are some of the things that you must be aware of when considering a trust deed:
- A trust deed remains visible on your credit file for six years from the date it commenced. This can make it difficult to get approved when taking out loan or credit
- You’ll be at risks for bankruptcy when your trust deed fails
- It might affect your job so checking with your HR department and reviewing your contract can help you determine the consequences
- Your information will be posted to the Register of Insolvencies for five years. A Register of Insolvencies is a public register that holds all the details of the current protected trust deed
- You have to make sure that you stick to your budget within for years while your trust deed is in place. This is to ensure that it’s on track and running smoothly
- There’s a fee for asking the services of the IP to administer or manage the trust deed
- When necessary, you have to sell your assets to cover certain costs or debt payments
Trust deeds are available for Scottish residents. It is a debt solution that can help you if it suits your circumstances. We can help you identify if a trust deed is what you need. You can use our debt advice tool for free or call us on 0800 193 1024.
We can also help you put together a realistic budget along with the debt solution that is appropriate for your finances and needs.