A Trust Deed is one form of Scottish debt solutions only available in Scotland. They are an agreement between someone struggling with debt and their creditors, in order for the borrower to pay back some or all of their debt. At the end of the trust deed, the individual is declared debt free. The borrower’s assets are given to a trustee, who is a qualified insolvency practitioner, to sell in order to pay back the debts. The borrower also usually has to make payments towards the debts from their income for five years, although the amounts and timescale vary case by case.
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WHAT IS A TRUST DEED?
Payment demands stopped
Once your Trust Deed is agreed, your creditors will not be allowed to contact you as long as your payments are maintained.
Interest charges frozen
Once your Trust Deed is in place your creditors can no longer add further interest or charges to any of your accounts covered by the agreement.
Protection from court action
Once your Trust Deed is agreed your creditors are no longer able to take further legal action against you so long as you stick to the terms of the agreement.
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Do you qualify for a Trust Deed?
To sign a Trust Deed you must meet the following criteria:
- Do you, or have you lived in Scotland within the last 12 months?
- Do you have a place of business in Scotland?
- Do you have debts of £4,000 or more?
- Are you able to make some form of monthly contribution to your debts?
- Is the stress and worry of debt becoming too much to handle? Do you need free and impartial advice from an industry expert?
Benefits of a Trust Deed.
When you sign a Trust Deed the following happens:
- Telephone calls and payment demands by creditors are stopped
- Interest and late payment charges are frozen
- All your debts are consolidated into one affordable monthly payment to make your life easier.
- Once you have a Trust Deed in place your creditors are no longer able to take further legal action against you, so you are protected from court action.
TRUST DEED EXAMPLE
Here is an example of how a Scottish Trust Deed could make your debts affordable.
FREQUENTLY ASKED QUESTIONS
- What is a protected Trust Deed
- Debts included in a Trust Deed
- Problem debt advice
- My house in a Trust Deed
- Signing a Trust Deed
- Creditors expectations
- Debtors circumstances change
- Trust Deed terms not kept
- Trust Deed long term effect
A person can apply to have their trust deed protected in order to prevent the included creditors taking other action to recover the debt, such as starting bankruptcy proceedings. A protected trust deed also stops the debtor themselves applying for bankruptcy. They also cannot apply for a debt payment programme from the Debt Arrangement Scheme.
For a trust deed to become protected more than half the creditors (or at least creditors representing two-thirds of the debt involved) included in must agree to its terms. Protected trust deeds are listed in the Register of Insolvencies, meaning that credit agencies and banks will know about it, which will affect the individual’s credit rating.
Trust deeds cannot become protected if:
The agreed payment plan would pay off all the debts in full
The debts involved total less than £5000
Too many of the creditor’s involved object to the terms
Most unsecured debts can be included. Secured debts, like mortgages, cannot be included. Other debts which are excluded from becoming part of a trust deed include:
Court ordered payments, such as fines, compensation, penalties or forfeiture orders
Family, aliment, or child support payments
Any debt owed due to fraud, such as benefit fraud
The best way to deal with problem to debt is to get advice as soon as making payments becomes a struggle. The sooner advice is sought, the better the chance of avoiding the most serious consequences of being unable to pay back loans, such as legal action, loss of major assets, or bankruptcy.
There are many places to get advice on managing debt. Charities offer face to face advice or telephone helplines. The Money Advice Service (www.moneyadviceservice.org.uk) can also offer advice on dealing with financial difficulties. There are also a number of professional companies who specialise in offering help to those struggling with debt. As the laws surrounding debts are different in Scotland, it is important that the person offering advice knows where the person struggling with debt lives.
A good advisor will help explore all the options for dealing with problem debt before committing to any one method.
Secured debt, like mortgages, cannot be included in a trust deed. If mortgage payments are missed, the property may still be repossessed.
If the person in debt owns their house or other property, it may be sold to pay back their debts. The trustee will do their best to prevent the house being sold on the open market, including exploring options to release the equity in the house or allowing a friend or relative to buy out the debtor’s interest in the house, but if there is no other way to raise the funds the house will be sold.
It may be possible to exclude a house from a trust deed by speaking to the mortgage provider and getting the agreement of the creditors in the trust deed. If the creditors do not agree to a trust deed which excludes the property, there is nothing preventing the offer of a second trust deed which does include the property. If a property that was excluded is sold within four years of the signing the trust deed, any money that is not used to pay off the mortgage of the property must be added to the assets used to pay back the creditors.
Whilst a trust deed can be an effective way to deal with problem debts, there are side effects to signing one and the trustee should talk about these with the individual involved before anything goes ahead. It is important to be aware that the individual can choose their trustee, and that trustees charge for the work they do. Their charges usually include a flat fee and a percentage of the funds raised during the time of the trust deed. Their fees are paid from money gathered during the trust deed. The trustee is paid before any creditors are paid.
Some third parties, including some debt advice services, charge fees which are not a part of the trust deed and cannot be included in the trust deed. These fees may need to be paid up front.
Creditors will not agree to a trust deed that they do not think is fair. This means that if they think that an individual can pay more back than they have offered to under the terms of the trust deed, the creditor will refuse to agree to it. They may also refuse to agree if they believe that an individual should be made bankrupt.
If creditors allow a trust deed to become protected, they agree to its terms and agree not to take any other action to recover the money owed for as long as the trust deed is active.
If the income of the person involved goes up or down during the time of the trust deed they must tell their trustee. An increase in income will likely mean an increase in payments. A loss of income may lead to a reduction or break in payments.
If the debtor receives a large sum of money, for instance, a large inheritance or a windfall, within four years of signing the trust deed, they must tell their trustee, and the money may be used to pay back their debts.
If the terms of a trust deed are not kept, for example with missed payments or undeclared assets, the trustee will not discharge the individual from their debts at the end and may ask the court to begin bankruptcy proceedings. The individual will be told in writing about the failure of the trust deed.
If the individual feels that the trustee’s decision is unfair, they can appeal to a sheriff of the Scottish Court.
Whilst signing a trust deed is one way to become debt free, it is important to know that there are long-term effects to having been subject to a trust deed. The individual:
may struggle to obtain credit in future due to the record on their credit report
may be excluded from running for office in some public bodies
may be excluded from applying for jobs in the financial sector
will usually not be allowed to be the director of a limited company
Talking to the companies or bodies involved will give more information about the restrictions that may be in place for those who have been subject to a trust deed.
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