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 are 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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SCOTTISH DEBT SOLUTIONS
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
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
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 from 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 then 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 that excludes the property, there is nothing preventing the offer of a second trust deed that does include the property. If a property that was excluded is sold within four years of 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.
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 the 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.
If you share a debt with someone else this is called ‘joint and several liability’. If you take out a trust deed the other person can be pursued for the whole debt. The joint debt is listed in the trust deed but no payments are made towards it by the trustee. It is possible for you both to have a trust deed but you should both discuss with the trustee whether or not this would be advantageous.
If the relationship has broken down then joint debts are one of the issues that should be discussed as part of all the financial circumstances of the relationship.
If you decide to set up a Trust Deed, you will need to see a licensed insolvency practitioner.
The insolvency practitioner will become the trustee for your trust deed. They will charge you a fee for setting up and running the trust deed. They are not allowed to charge their fees at an hourly rate. Instead, they have to charge a single, fixed, upfront fee plus a percentage of the assets that they gather in as part of the running of the trust deed.
Insolvency practitioners’ fees vary and can be expensive. You might want to check the charges of a number of different insolvency practitioners before you decide which insolvency practitioner to use.
You will usually need to have enough income left over after you have paid for essentials (called disposable income) to make a contribution towards your debts.
Disposable income is assessed by working out your usual income and expenditure over a month. Then you can see if you have any income left after you have paid for all your essentials.
If you don’t have any assets, such as savings, or property such as a car or a house, then you will need to have enough disposable income to pay towards your debts during the existence of your trust deed.
If you have enough disposable income to be able to pay off your debts in full in less than 4 years, then you will not be able to set up a protected trust deed. A Debt Payment Programme under the Debt Arrangement Scheme may be a more suitable option in this situation.
Entering into a Trust Deed will have a negative impact on your credit rating for 6 years. It is also important to remember that if you are at your credit limit or have defaulted on your payments due to your debts, then there is also a high chance that your credit rating has already been negatively impacted.
You will find it difficult to be accepted for a mortgage whilst you are involved in a Trust Deed. In fact, any property that you do acquire whilst in your Trust Deed vests with the Trustee.
Although it may be difficult, it will not be impossible. Whether or not you can get a mortgage will depend on your own circumstances, like your income, and also on whether or not you could convince a Mortgage Advisor that you will be reliable in paying your mortgage payments.
Your Trust Deed payments are calculated by using your disposable income. Your disposable income is a figure based on a deduction of your essential living costs and offsetting this against your income. The amount left over is considered to be the amount of money that you have left to pay back to your creditors.
Allowances are given for childcare, travel expenses, car finance, and other essential expenditures are included such as food and even lifestyle costs such as haircuts and hobbies.
Once you have entered into your Protected Trust Deed, your creditors will no longer have any direct contact with you. Instead, your creditors will be required to only contact your Trustee rather than you personally.
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