What is a Trust Deed?

 

Trust deeds produce a compromise between a debtor and their creditors.

 

You pay what you can afford towards your debts for an agreed period of time (often four years) and your creditors write-off the unpaid debt at the end.

 

Scottish trust deeds are a type of formal insolvency (under Scottish law) and are handled by licenced insolvency practitioners.

 

For personal advice about protected trust deeds and other debt solutions please contact us.

 

Do I Qualify?

 

You may qualify to enter a trust deed if:

 

1. You currently live in Scotland

2. You owe £5,000 or more

3. You can afford a monthly payment

4. You have some income other than benefits

 

Trust deeds may remain available if you recently left Scotland to live abroad.

 

Trust Deed Benefits

 

• Legal protection from creditors

• Your advisor deals with your creditors

• Potential for debt write-off

• A single monthly payment

• Allowances for household bills

• Options to protect your home

• Options to protect your vehicle

• Flexible if your situation changes

 

Trust Deed Drawbacks

 

Damaged credit rating

• Spending restrictions

• Assets taken into account

• Windfalls taken into account

• Falling into arrears

• Need to change bank account

Public record kept

• Fees and costs apply

• May fail if you can’t pay

• Affects some types of work

 

Protected Trust Deeds

 

Once your trust deed becomes protected your creditors cannot take legal action to recover debts from you.

 

To get protection you’ll need creditor support for your trust deed application. Creditors are given five weeks to decide whether to allow your trust deed to come protected.

 

Banks and other lenders share their acceptance criteria with the debt advice industry, so it’s usually clear in advance whether protection is likely.

 

Debts Covered

 

Most types of debt are included in trust deeds in Scotland:

 

• Bank Loans

• Bank Overdrafts

• Catalogues

• Council Tax Arrears

Credit Cards

Credit Union Loans

Debt Collection Agencies

• Guarantor Loans

High Cost Loans

• Payday Loans

• Store Cards

• Utility Arrears

Bounce Back Loan

 

Excluded Debts

 

Secured debts like mortgages, hire-purchase agreements, and some other types of vehicle finance aren’t included. You should continue to pay them.

 

Student loans are also excluded.

 

It’s possible that social security overpayments and fines will be excluded (but get personal advice as this is a complex area).

 

Complicated Debts

 

If you have joint debts remember that your trust deed will only cover you. The joint borrower remains fully liable for payment of the whole balance.

 

While guarantor loans are included the trust deed will only cover you. Your guarantor will remain liable for payment.

 

Money owed to relatives or friends is given no priority. You won’t receive an expenditure allowance that enables you to directly repay this type of debt.

 

If your debts built up because of gambling there may be a delay in setting-up a protected trust deed. Your trustee may need to see that gambling activity has stopped for a period of time before going ahead.

 

Using A Moratorium

 

If you’re at risk of a creditor using legal enforcement action against you, a moratorium can provide the breathing space you need.

 

Moratoriums stop creditors from using enforcement action and provide you with time to put a debt solution in place. This could be useful while you get debt advice and during the five weeks period when creditors decide whether to accept your trust deed.

 

A moratorium protects you for six weeks and can only be used once per year.

 

At the time of writing emergency legislation (related to Covid-19) has extended the protection period to six months.

 

Your debt adviser can apply for your moratorium on your behalf. Your personal details will be added to a public register and your creditors can continue to charge interest.

 

Minimum Four Year Term

 

The law requires trust deeds to run for a minimum period of four years. Some trust deeds are arranged to last for a longer period of time.

 

An extended term may be needed to help gather in the value of certain assets you own. This often applies to equity in your home or to a vehicle worth more than £3,000.

 

A term longer than four years may also be needed if your total debt level is high and/or your monthly payment is low.

 

The agreed term isn’t necessarily fixed. It can be extended if you fail to make payments, make reduced payments, or fail to declare beneficial changes in your financial situation.

 

You can get discharged before four years but only if you become able to pay the total of your full debt, interest on the debt, and your trustee’s fees.

 

Employment Issues

 

Few types of work are affected by entering a personal insolvency process. It’s sensible to check your contract of employment for insolvency clauses in advance.

 

You may have employer disclosure obligations if you work in the military, police, or prison service.

 

You may have regulatory obligations and barriers if you work in the professions. This could apply to solicitors and accountants for example.

 

Financial services employers are more likely to include insolvency clauses in employment contracts.

 

Company directors and the self-employed may face additional challenges if they utilise an insolvency process such as a Scottish trust deed.

 

Joint Trust Deeds

 

Joint trust deeds don’t exist. Couples enter individual trust deeds but the set-up and management processes are coordinated.

 

Can I Enter A Trust Deed Again?

 

Using a protected trust deed in the past doesn’t stop you from using one again in the future.

 

There are plenty of examples of people in Scotland using a trust deed for a second time.

 

Payments to your Creditors

 

You’ll stop paying your creditors directly when your trust deed is arranged.

 

The creditors receive payment from your trustee in the form of dividends.

 

Alternative Scottish Debt Solutions

 

Bankruptcy is also known as sequestration in Scotland. This debt solution could result in you becoming debt-free after just one year.

 

A debt arrangement scheme protects you from your creditors while repaying your debts at a rate you can afford. No debt gets written-off.

 

Using a debt management plan also helps you to repay creditors at a rate you can afford. No debt gets written-off and you don’t have formal legal protection from creditors.

 

A debt consolidation loan is another option if your credit rating is good enough and you can afford the repayments. This option can be risky but it’s less likely to damage your credit rating.

 

If you live in the rest of the UK (outside Scotland) the options are different. We suggest you review our pages on an IVA, debt relief order, and bankruptcy.

 

Get Trust Deed Advice

 

Bright Oak can advise you on statutory Scottish debt solutions. We work in partnership with Wylie & Bisset in Glasgow to deliver protected trust deed services.

 

For friendly expert debt advice please contact us.

 

Author: Andrew Graveson

Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 20/07/2020

 

 

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