A Trust deed is the Scottish equivalent of an Individual Voluntary Arrangements (IVA) utilized in England and Wales. It is a way for people to pay their debts in the longer term rather than face legal action. It is a legally binding agreement between the person that owes the money and any creditors.
It involves an intermediary known as an Insolvency Practitioner who is in effect the trustee, who works with both the person who owes the debt, and the creditors who are trying to recover their money. A trust deed is usually used as a way of avoiding bankruptcy proceedings.
The person that owns the money will need to provide the trustee with a complete breakdown of what is owed to every one of their creditors. The trustee will then produce a financial proposal, which he will present to both the individual in debt and the creditors. Often the trust deed will be legally bound as “protected”. A protected agreement means that the creditors may no longer pursue the debtor for recovery of the debts.
In addition there will be no extra interest added to the outstanding amounts. The arrangement is a private one, and no information regarding the trust deed is made public. In return the creditors will have the right to a charge on any equity there may be in your home. Meaning that when you sell it, or it is otherwise transferred, the debts will have two be paid to the creditors.
Often these arrangements may go hand-in-hand with a debt management plan; this relieves the immediate pressure from the person in debt, but allows them to make payments on their debt over a longer period of time, without the burden of additional interest.
This can be a very viable option for both sides, allowing the person in debt a large amount of peace of mind, and breathing space to pay off their loan over time, or when they sell their home. The creditors benefit by having security and the knowledge that they will eventually receive their debt payment.