Trust Deeds

In Scotland, Trust Deeds are a valuable Government created debt relief tool that offers a way to manage your unaffordable debt.

You can reduce your monthly debt payments down to an affordable level and become debt free in as little as 48 months. You must have a minimum of £5,000 of unsecured debt to qualify, but you can apply for a Trust Deed if you have over £50,000 of unsecured debt also.

If you qualify, a Trust Deed is right for you depending on your personal circumstances and ultimately you should be given qualified debt advice to explain to you the advantages of Trust Deeds and the disadvantages of Trust Deeds and there are alternative debt solutions in Scotland that may be more suitable for you such as the Debt Arrangement Scheme.

You should never feel pushed into taking a Trust Deed, or indeed any other type of debt management product including debt consolidation loans.

When asking yourself the question Is a Trust Deed right for me, only you can make that decision after receiving balanced and transparent debt advice from an FCA authorised company. Call us on 0141 221 0999 for free confidential help, or try our Trust Deed Wizard^® tool now.

The minimum debt level required to enter into a Trust Deed is £5,000 and this total debt amount is based on your unsecured debts only.

Examples of unsecured debts include personal loans, credit and store cards, payday loans, council tax arrears, catalogue debts, credit union debts and bank overdrafts.

It may be possible to include a mortgage shortfall from a previous address which has since been repossessed or car finance where the car has been handed back already. Some HMRC debts can be included in certain conditions and if you have a mobile phone bill, for example, you can include these debts also, should you no longer wish to use the contract. You can include utility bills from previous addresses. Some debts cannot be included in Trust Deeds, for example, student loans and court fines.

When you look to take out a Scottish Trust Deed and have less than £5,000 debts, you may also consider the Debt Arrangement Scheme as an alternative.

You may also qualify for more than one debt solution, and in order to understand the advantages and disadvantages of each and how they may directly affect you.

IVAs, also known as Individual Voluntary Arrangements are the English, Welsh and Northern Irish equivalent of Trust Deeds in Scotland but an IVA is not exactly the same as a Trust Deed.

The length of the process is the main difference, with a Trust Deed typically lasting 4 years and an IVA lasting 5 years. Sometimes you may read about a Scottish IVA, but this is a term generally used to describe a Trust Deed.

Another difference is the amount of debt that can be included with a Trust Deed, you would typically have £5,000 of unsecured debt, and with an IVA, you can apply for an IVA with £6,000 of unsecured debt.

While an IVA may not technically be the same as a Trust Deed, there are other similarities and differences between IVAs and Trust Deeds. There are other solutions in Scotland that vary from the rest of the UK solutions including:

the Debt Arrangement Scheme (Scotland) – DMP: Debt Management Programme (England, Wales & Northern Ireland)

Minimal Asset Process (Scotland) – DRO: Debt Relief Order (England, Wales & Northern Ireland)

Sequestration (Scotland) – Bankruptcy (England, Wales & Northern Ireland)

A key difference between the Debt Arrangement Scheme and a Debt Management Programme is that DAS allows interest and charges to be legally frozen and the DMP is a voluntary agreement between an individual and their creditors. It’s another government-created, formal solution only available to residents in Scotland, and there are plans to create a similar agreement for English, Welsh and Northern Irish residents in due course.

You don’t need to pay any setup fees upfront for your Trust Deed but there are costs involved in running a Trust Deed, such as:

1. A fixed administration fee.

2. A percentage fee based on the amount you’re paying back.

At the moment all Insolvency Practitioners charge fees and there’s no free service, however, Insolvency Practitioner fees are included in the monthly amount that you agree to pay back.

These Scottish Trust Deed fees are agreed by your creditors and put simply, they are absorbed by the creditors as they are writing off a proportion of your debt. The purpose of the Trust Deed is to allow you an opportunity to get out of debt, and reduce the amount you pay each month towards debt payments. You can also find out more about how your monthly Trust Deed payment is calculated.

Almost all unsecured debts can be included in Trust Deeds such as:

• Personal Loans
• Payday Loans
• Credit Cards
• Council Tax Arrears
• Store Cards
• Catalogues
• Overdrafts
• Credit Unions
• Mortgage Shortfalls (Repossessed property)
• Car HP, PCP Finances (Vehicle already handed back)
• HMRC Bills (Self-employed)

The main debts that can’t be included are student loans, court fines, and secured loans. Contact us today for advice on what types of debt can’t and can be included in a Trust Deed or any alternative solutions.

Find out more information on Protected Trust Deeds.

If your circumstances change when you’re in a Trust Deed, the most important thing to remember is that you tell your Trustee of any financial changes that will prevent you from making the agreed Trust Deed payment amounts immediately.

The amount that you repay has been agreed with your creditors but ultimately, your Trustee is there for you and to help make sure that the Trust Deed doesn’t fail.

Your Trustee will work with you in order to help you complete the Trust Deed term and if your circumstances have changed while in a Trust Deed then a variation in the Trust Deed is likely to be the first step if you were to lose your job for example.

Trust Deeds, the Debt Arrangement Scheme and Sequestration / Minimal Asset Process are all formal debt relief tools in Scotland designed to help get you out of debt depending on your circumstances, but there is flexibility built within them, to deal with situations that may arise from time-to-time.

A Trustee is a person who takes responsibility for managing money or assets in an official capacity. In the context of Trust Deeds, a licensed Insolvency Practitioner will take on the role of Trustee, and they will administer the Scottish Trust Deed on your behalf.

The Trustee will become the liaison between you and your creditors. As long as you make the agree reduced monthly payments, your creditors can no longer call you up, email you or contact you directly to chase debts.

In a Debt Arrangement Scheme, the equivalent role is performed by a fully trained and approved Money Adviser. 

When your agreed Trust Deed term has been complete, your Trustee will issue you with a letter of discharge and you will then be formally discharged from your Trust Deed.

Trust Deeds 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.

When you are discharged from a Protected Trust Deed, you will also be discharged from any outstanding debts which were due at the date you signed your Trust Deed. This means that your creditors are no longer allowed to pursue money that was owed to them when you signed the Trust Deed. Any unsecured debt will be formally written off.

As well as receiving the letter of discharge after the Trust Deed term has been complete, a copy of the letter will go to the Accountant in Bankruptcy and the Register of Insolvencies will record your Trust Deed discharge.

Not that the formalities are taken care of, you are officially debt free and able to enjoy Life After Debt.

Should you wish to do so, now that the Trust Deed arrangement has been complete; you can begin to apply for new credit facilities and repair your credit rating.

 You would struggle to be accepted for a mortgage whilst you are in a Scottish Trust Deed. Any property that you buy in the duration of your Trust Deed vests with the Trustee.

However, it would depend on your personal circumstances such as your income, and whether you can convince a Mortgage Advisor that you can reliably make your mortgage payments.

A Protected Trust Deed remains on your credit file for six years from its start date, alongside previous default notices, and before you’re discharged you won’t be able to obtain credit.

When the Protected Trust Deed term is complete, you’ll find that lenders are reluctant to lend money to you until you build up a better credit score, and demonstrate that you can handle your finances again.

Inform the Credit Reference Agencies

Once you’ve been discharged from the Trust Deed, you should let the credit reference agencies know as soon as possible.

Your trustee will issue a Discharge Certificate which should be copied and sent to the three main agencies so they can log it on your file.

Check that the information held about you is correct

Credit reference agencies are used by lenders as part of their due diligence procedures, and the information held about you will be a major factor in their willingness to lend.

This is why it is advantageous to check at regular intervals that the information on your credit file is correct once the Trust Deed has ended.

If creditors have failed to inform the agencies that you’ve repaid certain debts, this will continue to harm your credit rating.

So if you find an error, you should contact the creditor concerned and request that they inform the credit reference agency. The debt should then be marked as ‘satisfied’ on your credit file.

Use credit to your advantage

Credit can be used to boost your credit score once the Trust Deed term is complete. If you don’t have any lines of credit in the long-term, it can have a detrimental effect on your credit rating.

Lenders like to see that you’re responsible with money, and a great way to illustrate that you a responsible borrower is by using ‘credit builder’ credit cards.

A number of specialist lenders offer these credit cards for people who are trying to rebuild their credit file following a period of debt. As long as you meet all the required repayments in full and on time, your credit rating will be boosted over time.

If you fail to make a single repayment, however, your credit file will be further damaged and you’ll find it significantly more difficult to borrow in the future. Additionally, it’s better to use this type of card for small purchases which can be repaid easily in full, rather than large items, as the interest rates are extremely high if you default.

Lenders typically look at the recent credit activity when they check a credit file, and over a period of time time, repaying the balance on your card each month will work in your favour, as it shows that you can be trusted again as a borrower.

Additionally, your lender may be inclined to reduce the rate of interest attached to your card, if you repay in full over the long-term.

Make sure you’re on the electoral register

Being on the register to vote in Scotland confirms to lenders that you have a permanent address, which will generally boost your chances of being offered credit when you look to rebuild your credit score.