A Trust Deed is a form of insolvency. It’s a voluntary, but formal, agreement between you, your creditors and your appointed Trustee (Insolvency Practitioner) to pay back only what you can afford towards your debts. It involves a degree of debt forgiveness – meaning, if agreed, your creditors will write off some of what you owe them.
Once protected, it’s a legal way to help get you back on the road to financial stability. A Scottish Trust Deed is designed for people who have debt and are struggling to meet their monthly repayments. A Trust Deed can help you write off unaffordable debt, if you qualify, and typically lets you pay back what is deemed affordable for 48 months (4 years).
It’s important to consider the following points when thinking about whether a Scottish Trust Deed is the right choice.
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What are the criteria to be able to apply?
- You need to live in Scotland.
- Your debts must be over £5,000.
- You must have a provable form of income.
The amount of debt that will be written off is dependent on your individual financial circ*mstances and both the agreement of, and amount that can be written off in, a Scottish Trust Deed are subject to creditor approval.
Benefits
Reduced or stopped contact from creditors
The unsecured creditors who agreed to the terms of yourScottish Trust Deedcannot take any further action for recovery of their debt once your Trust Deed is protected. Your Trustee will deal with all contact from your unsecured creditors, distributing your payments among them according to the terms agreed in your Scottish Trust Deed.
Financial stability in 48 months (or your agreed term)
Your Scottish Trust Deed typically lasts for only four years, unlike normal debt that can feel like a permanent heavy weight on your shoulders for years on end. With a Scottish Trust Deed, after 48 months, you’ll be discharged from unaffordable debts and the remainder of your debts will be written off.
Only pay what’s affordable
Your income and expenditure is assessed against agreed guidelines called the Common Financial Statement and Scottish Debt Help’s dedicated team will help explain what you can and can’t include in your budget. Your appointed Trustee will reassess your income and expenditure at least once every year.
Negotiate to keep your property
You may be able to negotiate to keep your home rather than sell it. This is a major fear of many people facing sequestration. Being made to sell a family home and move to rented accommodation can be distressing. A Protected Trust Deed can, in certain circ*mstances, help prevent this from happening.
If you’re self employed typically you can carry on trading
If you own a company or are a sole trader, you can still carry on trading, although you may need special permission from the company if you’re a director. You may even be able to obtain very small amounts of credit, unless the terms of your Scottish Trust Deed say that you can’t.
Considerations
It will affect your credit rating
A Scottish Trust Deed will affect your credit rating. Unfortunately, there’s no way to avoid this, although it’s likely your credit record is already being affected if you’ve missed payments on your debts. You may also struggle to source credit during the period of your PTD and there are restrictions on obtaining credit, as well.
Your lenders can also choose not to approve your PTD.
You may have to sell or remortgage
Granting a Trust Deed could mean that your house may be sold and you might have to move home, unless it’s excluded under the legislation or you can make alternative arrangements. The exclusion terms are quite complicated and are set out insection 2.8 of the Accountant in Bankruptcy’s Trust Deed Guidance, but they generally apply only to your main residence if it has little or no equity. However, even if your property isn’t excluded you may be able to agree to make additional payments into your Trust Deed in lieu of the equity or arrange for a remortgage (remortgaging may attract higher interest rates and if no remortgage is available the period may be extended) or third party contribution to pay for any equity within your home, so you have several options to avoid having to sell.
More information of how Trust Deeds can affect your property can be foundhere. A Scottish Trust Deed may also require you to sell high value items to raise funds to pay your creditors. You won’t be expected to sell basic household items such as your TV or computer and you can keep your car if you need it for work and family purposes. The only exception to this is if the car is high value; you may then be expected to downsize to something less expensive. If you pay into a pension, you may be required to reduce your payments or stop making payments until the Scottish Trust Deed is complete.
Only unsecured debts are covered
Only unsecured debts are covered by a Scottish Trust Deed, so any loans secured on your home or through hire purchase agreements aren’t covered.
It will be advertised
When you grant your Scottish Trust Deed, it’ll be recorded on the Register of Insolvencies, which is a public record.
Don’t miss a payment
If you fail to make a payment under your Scottish Trust Deed agreement without first contacting your Trustee for discussion and permission, you may find the Trust Deed could fail and you won’t then be discharged from your debts. It’s sometimes possible to arrange payment holidays, or to extend the timeframe of the Scottish Trust Deed in exceptional circ*mstances, so it’s important you let your Trustee know as soon as you think you might not be able to make a payment. If your Trust Deed does fail, you risk being made bankrupt.
Don’t take out more debt
If you run up any new debts, in addition to those within your agreement, your new creditors will be able to pursue you for your new debts. Your existing Scottish Trust Deed doesn’t cover debts incurred outside the agreement. This is why it’s extremely important for you to declare all of your debts to your Trustee at the beginning.
Also, it’s important to note that there are restrictions on the expenditure of a person who enters into a PTD.
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Now, let's dive into the information related to the concepts mentioned in the article about Trust Deeds.
Trust Deeds:
A Trust Deed is a form of insolvency that involves a voluntary agreement between an individual, their creditors, and an appointed Trustee (Insolvency Practitioner). The purpose of a Trust Deed is to help individuals who are struggling with debt to pay back only what they can afford.
Debt Forgiveness:
One of the key features of a Trust Deed is debt forgiveness. If agreed upon, creditors may write off a portion of the debt owed by the individual. The amount of debt that can be written off depends on the individual's financial circ*mstances and is subject to creditor approval .
Criteria for Applying:
To be eligible for a Scottish Trust Deed, certain criteria must be met. These criteria include:
- Living in Scotland
- Having debts over £5,000
- Having a provable form of income.
Benefits of a Trust Deed:
There are several benefits associated with a Trust Deed, including:
- Reduced or stopped contact from creditors: Once a Trust Deed is protected, creditors who agreed to its terms cannot take further action for debt recovery. The Trustee appointed in the Trust Deed will handle all contact with the creditors.
- Financial stability in 48 months: A Scottish Trust Deed typically lasts for four years, providing individuals with a clear timeframe for debt repayment. After 48 months, unaffordable debts can be discharged, and the remaining debts may be written off.
- Paying what's affordable: The individual's income and expenditure are assessed against agreed guidelines called the Common Financial Statement. The appointed Trustee will reassess the income and expenditure annually.
- Negotiating to keep property: In certain circ*mstances, individuals may be able to negotiate to keep their home rather than sell it. This can help prevent the distress of having to move to rented accommodation.
- Continuing self-employment: If the individual is self-employed, they can generally continue trading. However, special permission may be required from the company if they are a director. There may be restrictions on obtaining credit during the Trust Deed period.
Considerations:
While a Trust Deed can provide relief for individuals struggling with debt, there are some considerations to keep in mind:
- Impact on credit rating: A Scottish Trust Deed will affect the individual's credit rating. This may make it difficult to source credit during the Trust Deed period.
- Possibility of selling or remortgaging property: Granting a Trust Deed may result in the sale of the individual's house, unless it is excluded under the legislation or alternative arrangements are made. High-value items may also need to be sold to raise funds for creditors.
- Coverage of unsecured debts only: A Scottish Trust Deed covers only unsecured debts. Loans secured on the individual's home or through hire purchase agreements are not covered.
- Public record: When a Scottish Trust Deed is granted, it is recorded on the Register of Insolvencies, which is a public record.
- Importance of making payments: It is crucial to make payments under the Trust Deed agreement and communicate with the Trustee if there are difficulties. Failure to make payments without permission may result in the Trust Deed failing, and the individual may not be discharged from their debts.
- Restriction on incurring new debts: Any new debts incurred outside the Trust Deed agreement are not covered. It is essential to declare all debts to the Trustee at the beginning.
Please note that the information provided is based on the article you provided and may not cover all aspects of Trust Deeds. It is always advisable to consult with a financial advisor or insolvency practitioner for personalized advice.
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