What is a Trust Deed?
A Trust Deed – also called a ‘Protected Trust Deed’ – is a formal debt solution for people living in Scotland. It’s designed to help people who are struggling with debt – reducing unaffordable debts down into one affordable monthly payment.
Here, we’ll take a look at Trust Deeds in a little more detail; explaining exactly how they work, and how to get started if you’d like to learn more. We’ll also answer some common questions that people have about Protected Trust Deeds.
Before we get started, you should remember that a Trust Deed is only available to Scottish residents. If you live in England or Wales, an IVA or a Debt Management Plan could be better suited to your needs.
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What does a 'Trust Deed' mean and what's involved?
If you’re a Scottish resident and you’ve got debt of £5,000 or more that you’re struggling to repay, you could be eligible for a Trust Deed.
Trust Deeds are called a ‘formal’ debt arrangement. This means they are legally binding and can only be arranged by an Insolvency Practitioner (IP). An IP is a qualified professional who is licensed to act on behalf of someone who is struggling with their finances.
The Insolvency Practitioner plays an important part in setting up and monitoring the arrangement. They will work with you to make sure the payment you’re asked to make is affordable, and they will communicate with your creditors (the companies or people you owe money to) on your behalf. When you enter into a Trust Deed, the IP takes on the role of ‘Trustee’.
Why are Protected Trust Deeds so popular?
There are lots of reasons why people who live in Scotland might choose a Trust Deed to help them tackle their debt:
Your interest is frozen
Your debts will stop going up. Creditors will not be able to add any more interest and charges.
You only make one payment
You don’t have to worry about making lots of payments to different companies. You’ll only make one payment based on what you can afford.
Leftover debt is written off
When you get to the end of the agreement, your trustee will make sure anything you still owe is written off.
If you have any earnings arrestments, these will be removed when your Trust Deed comes into force.
No more calls and letters
When your Protected Trust Deed becomes active, your creditors will stop contacting you to chase payments.
Stop legal action
As long as you keep up with your monthly payments, your creditors won’t be able to take legal action over your debt.
Keep your car and home
You’ll be able to keep control of any ‘assets’ – including your car and your home.
No upfront fees
An IP does make a charge for acting as a trustee, but these fees are taken from your monthly payment, rather than being charged upfront.
Does a Trust Deed have any downsides?
As a formal debt arrangement scheme, a Trust Deed does come with some things you’ll need to think about:
If you own your home or have a mortgage, you’ll be expected to release any equity you have in your home to help pay your creditors.
Your creditors may object to your Trust Deed coming into force (officially known as becoming ‘Protected’). If most of your creditors object, or if the creditors that object hold most of your debt object, then the Trust Deed may not go through.
Some professions might be affected
In some cases, your job or professional role could be negatively affected if you decide to apply for a Trust Deed. You will not be able to act as a company director, and you may exclude yourself from certain jobs in prison, police, and financial services.
Getting credit in the future might be harder
Your Trust Deed will be noted on the Register of Insolvencies, a public record that may be viewed by financial professionals. The Trust Deed will also show on your credit rating – and it could make it harder to get credit in the future.
How long does a Trust Deed last?
A Trust Deed will usually run for 4 years – although a longer period is sometimes considered.
Since any outstanding debt is written off at the end of the term, it could mean that up to 90% of your debt doesn’t need to be repaid.
When you make your final payment and the term is done, your trustee will make sure you’re sent a certificate confirming that your arrangement is completed.
Does a Trust Deed have any other names?
The term Trust Deed is similar to some other financial and legal terms – including ‘Trust of Deeds’, ‘Deed of Trust’, or ‘Deed in Trust’.
These other terms actually relate to property law and ownership – so be careful not to mix them up. If you’re looking for a way to write off debt or debts, you need to talk to an Insolvency Practitioner about a Trust Deed.
What kind of debts can be included in a Trust Deed?
There are a variety of debts that can be included in a Trust Deed. They include:
- Personal Loans
- Credit Cards
- Council Tax Arrears
- Payday Loans
- Outstanding BIlls
- Income Tax Arrears
- Money Owed to Family or Friends
- Catalogue or Store Card Debts
- Energy and Water Bill Arrears
- Tax Credit or Benefits Overpayments
It’s possible to include joint debts too, and as long as they keep paying what they owe, their credit rating will not be affected.
Can you go into a Trust Deed twice?
As long as your previous arrangement was completed and you were officially discharged, you will be able to apply for another.
A second Deed would be decided on in exactly the same way as the first – with creditors accepting or objecting, and your application moving forward from there.
Is a Trust Deed worth it?
As you can see, there are pros and cons when it comes to a Trust Deed. Your credit rating could take a while to rebuild – even after all your payments are made.
Of course, you could see a large proportion of your debt completely written off – and in 4 years, you could be debt-free, perhaps never needing to worry about arrears, debt collectors, or legal action again.
There are lots of things to consider if you’re thinking about applying for a Trust Deed – but don’t worry, our experienced team will take their time explaining how everything works and offering advice that’s specific to your circumstances.
Advantages of using a Trust Deed – Scotland
· You’ll only make repayments for a fixed term
· Remaining debts will be written off
· Creditor communication and action stopped
· You keep assets like your home and car
· There are no hidden costs or application fees
Disadvantages of using a Trust Deed – Scotland
· Creditors may object to the arrangement being set up
· Your credit score is likely to be impacted
· Your employment could be affected
· You may need to release equity from your home