Trust Deeds were introduced by the Scottish Government in the 1980s, to help people struggling with debt, and so far, Trust Deed Scotland® has helped over 16,000 Scottish residents use Trust Deeds to become debt-free. A Trust Deed is a voluntary but legally binding agreement between you and your creditors where you agree to pay back an affordable portion of what you owe, whilst protecting your home and car. It allows you to make payments towards your debt in a fixed timeframe, typically over 4 Years.
A Trust Deed can only be arranged and administered by a Licensed Insolvency Practitioner (IP) who will take on the role of ‘Trustee’. It’s the IP’s job to administer the Trust Deed and deal with your creditors for the agreed period, leaving you to get on with your life, without worrying about debt.
When you enter into a Trust Deed, you will make one affordable monthly payment towards all your unsecured debts, your creditors are not legally allowed to contact you for any further payments. Once the Trust Deed is completed, any remaining, qualifying, unsecured debts will legally be written off. Your creditors can no longer pursue you for the remaining amount leaving you debt-free.
If you feel that you are living from month to month, juggling debt repayments and are worried about how you will ever pay your debt off, then we recommend you look at what options are available to you to get your finances back on track.
To do this, you can use our TRUST DEED WIZARD® or you can just call us to speak to an advisor in complete confidentiality.
We will work out how much you can afford to pay towards your debt each month – this will help let us know what options are available to you, which will include:-
Our advice is to not rush into anything. Our FCA-regulated advisors are at hand to let you know about all the available options to help you become debt-free – however, only you can make the final decision on what will suit you the best.
If you want to proceed with a debt solution, we will start drafting your case, to make sure your creditors will accept our proposal. Once this is done, we will confirm everything to you and send you out the paperwork for you to look over and be 100% happy with.
After you sign your paperwork, the next step is to get it approved by your creditors to protect it. Our Trust Deed proposals currently have a 99% creditor acceptance rate. However, to ensure your expectations are managed from the start, your advisor will let you know what the chances are you will get accepted/rejected, based on their previous experience.
Once your paperwork is processed, this will be registered on the AIB (Accountant in Bankruptcy) website, where your creditors can access it. They usually have five weeks to accept or reject it – the decision will be relayed to you by the insolvency practitioner (your ‘trustee’), as creditors can’t directly contact anyone who has entered a Trust Deed.
This five-week period is known as the ‘protection period’. After it lapses, with no claim from your creditors, you’ll receive your protection letter from your trustee, making you aware that your trust deed has been fully approved and that you’re now in a protected trust deed agreement.
Getting your Trust Deed approved gives you legal protection from your creditors. As long as you stick to the terms of the trust deed, creditors can’t take further action to pursue the debt.
Typically you make your first payment once your Trust Deed becomes protected. This can be set up between you and your advisor for a time of the month that’s comfortable for you.
For example, if you’re paid a salary at the end of each month, your advisor could arrange your Trust Deed payments to be scheduled for just after then.
After your Trust Deed term is finished, you will be discharged from the Trust Deed and any remaining debt will be written off, leaving you free of debt.
A Trust Deed can include most unsecured debts, including:
Unfortunately, Student loans, local authority parking fines and court fines can’t be included in a Trust Deed.
A ‘Protected’ Trust Deed is the status your Trust Deed gains when the majority of your creditors agree to it’s terms and the AIB or ‘Accountant in Bankruptcy’ to protect it.
After your Trust Deed is registered, all creditors have the opportunity to object. However, if either a majority in number of creditors or a creditor with over 33% in debt value object within five weeks, then it can fail to become protected. If they don’t object your Trust Deed will be presented to the AiB for protection.
Getting your Trust Deed protected means that your creditors can no longer pursue you or take any action to recover the debt.
If your biggest creditors don’t agree to your Trust Deed, it’s not ‘Protected’ and therefore not legally binding.
At Trust Deed Scotland® we have a 97% success rate for protection and make the entire process as transparent and stress-free as possible. If we can see a risk that a Trust Deed may not gain protection we will always try to manage your expectations and let you know beforehand.
A Trust Deed is available to people who have been living in Scotland for more than six months and who have a total debt of £5,000 or more. There are many factors that can influence your eligibility for a Trust Deed, including:
You can qualify as a homeowner (depending on your equity, don’t worry we will check this as part of the process), a private tenant, a council tenant, or someone who lives with their parents. If you own your home, your Trust Deed Scotland® advisor will explain to you how you can protect it.
Find out if you’re eligible for a Trust Deed in 60 seconds with our Trust Deed Debt Calculator.
In the context of Trust Deeds, your Licensed Insolvency Practitioner will take on the role of Trustee, they will administer the Trust Deed. They will become the liaison between you and your creditors. As long as you make the reduced monthly payment, your creditors can no longer call you up, email you or contact you directly in any way.
There’s no particular age restriction however each case will be considered on its own basis and risks.
Typically four years – you make 48 monthly payments (the same amount each month) to your trustee who distributes the money to your creditors, minus their fee for arranging and managing the Trust Deed.
However, in some circumstances it could take longer, this will all be discussed with you.
No setup fees are involved in setting up a Trust Deed. All administration fees are included in your monthly payments:
These are charged against the money you owe creditors, so will be agreed between you and your creditors at the start.
Your monthly payments are based on your disposable income, which is calculated by deducting your living costs from your income. This can include for example; mortgage/rent, bills, childcare, transport costs, food and even lifestyle costs such as haircuts and hobbies.
Most people find that after entering a Trust Deed their monthly outgoings are significantly reduced, alleviating stress from debt.
£5,000. You also need to have a regular income or for someone to guarantee to pay some or all your debt.
A secured debt is any debt which is secured against an item. The company lending you the money will use your asset as security if you can’t repay your loan, that means your lender has the right to repossess your home or car.
An unsecured loan is when you borrow money from a lender and agree to make regular payments until it’s paid. This type of loan isn’t secured on any assets and so the interest rates tend to be higher.
Student loans can’t be included in a Trust Deed but all other unsecured debts can be considered.
When you enter a Protected Trust Deed your future interest charges can be frozen. After signing a Trust Deed, you’ll be paying back the debt you already owe but not racking up any more debts as you go.
You will be discharged, and your qualifying debt will be written off, leaving you debt free,, unless you’ve agreed otherwise with your trustee beforehand.
Legally, your creditors can no longer pursue you for the remaining amount leaving you debt-free. A Trust Deed typically lasts for 48 months but it may be extended by a year if you want to protect your assets such as your home and car.
If you are discharged from your debt you legally no longer owe this debt and can’t be pursued for it.
The most important thing to remember is that tell your trustee of any financial changes that will prevent you to stick to the Trust Deed payment agreed with your creditors. Your trustee will work with you help complete your Trust Deed if your circumstances have changed while the Trust Deed is running.
You shouldn’t take out any credit while in the Trust Deed. If you do, you will still be liable for the debt and can’t add it into the Trust Deed at a later date.
Any property you buy in the duration of your Trust Deed vests with the Trustee. You would also struggle to be accepted for a mortgage whilst in the Trust Deed.
However, it would depend on your personal circumstances such as your income and whether you can convince a Mortgage Advisor you can reliably make your mortgage payments.
Much will depend on your income and whether you can convince a mortgage lender that you’re a responsible borrower. We recommend that you talk to a financial advisor for more information about this
If you’re a homeowner and your home is worth more than the amount owed on your mortgage loan, you may have to release some of its value.
The gap between the value of your home and mortgage is called equity. Your advisor will discuss this with you, and if necessary, any equity arrangements will be organised before entering a trust deed.
Your credit rating will be affected, but in our experience, if you have overextended yourself – even if you haven’t missed payments, it may have already been damaged.
Once your Trust Deed agreement has ended, you can start rebuilding your credit rating. A default notice will remain on your credit record for six years after it’s registered. The average Trust Deed lasts four years, so it’ll be on your credit record for two years after it’s complete.
In our experience, most people don’t want to live under the burden of debt after completing a Trust Deed.
This is a common question that people ask us, and the answer is yes – in a Trust Deed, your mortgage and car HP payments are ring-fenced so you would just continue paying them as normal – subject to approval, and completion. If your house or car were at risk you would be advised other options, your advisor will explain how we can protect your house and car. Try the Trust Deed Wizard ®
Your assets will be safe if you stick to the Trust Deed’s terms.
A Trust Deed will not affect your spouse unless you have joint debt.
As with all debt solutions the main impact for you will be it will affect your credit rating. Credit reference agencies will assess the level of risk based your on financial history which may include a trust deed however, once your trust deed is completed, you can start to rebuild your credit rating.
If there’s a change in your finances whilst in your Trust Deed, let your Trustee know and they will help you complete your Trust Deed.
If you don’t speak to your Trustee and fail to make the agreed monthly payments you will be in breach of the terms of your Trust Deed and further action could be taken against you.
For example, your IP can take further action such as instructing an earnings deduction. They can also petition for your sequestration or may decide to resign from the Trust Deed which may result in your creditors pursuing you again.
Your credit history will be affected for 6 years from the Trust Deed start date.
You can apply for new credit but in practice, t may be difficult to obtain during this time. It will depend on the individual lenders but it may be difficult to be accepted until you’ve built your credit rating up again, or you could be offered a higher interest rate.
Certain employers may not allow any form of insolvency, particularly if you work in the finance industry. We can give you advice on this during a phone call.
People worry that they will be chased for payments when the Trust Deed is running however, this is not the case. A protected Trust Deed uses formal legislation, meaning your creditors are legally bound not to contact you for any payments, as the payments for your debt will now come from your Trust Deed contributions.
With our industry experience, a fantastic rate of over 99% of our Trust Deed proposals are accepted. If a creditor wanted to object, it would do so in writing within five weeks of your Trust Deed being proposed. Even then, it would only fail if that creditor represented over 33% in the total debt value or over one half in number. If 67% of creditors agree with the proposal, then the other creditors will still be legally bound by its terms, even if they object. In the unlikely event your Trust Deed did fail, your trustee would negotiate your case in an attempt to have it accepted , remember other Scottish debt solutions such as the Debt Arrangement Scheme (DAS) and Sequestration can also be available.
The Accountant in Bankruptcy known as the Accountant in Bankruptcy (AiB) supervises all Trust Deeds however each Insolvency Practitioner is licensed by their own regulatory body.
This will be the Insolvency Practitioners Association, Institute of Chartered Accountants of Scotland.
Length – Trust Deeds last for 4 years. After this time, any remaining debt is paid off. With Debt Arrangement Schemes, they last until all your debt is repaid.
Amount of debt – to qualify for a Trust Deed, you must be in at least £5,000 of debt. For Debt Arrangement Schemes, there is no minimum debt level.
The difference between a Trust Deed and a Deed of Trust is quite significant. A Trust Deed is an alternative to bankruptcy in Scotland and involves a professional overseeing your repayment of debt over a certain amount of time to your creditors.
A Deed of Trust meanwhile, is a legal document most commonly related to the ownership of property. It also involves a Trustee who manages how property is really owned, enabling your percentage of ownership to be protected, even when you are not listed in the land registry as the owner.
For more information, we have a whole blog on the differences between Trust Deeds and a Deed of Trust.