What is a Trust Deed?
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.
Who qualifies for a Trust Deed
To qualify for a Trust Deed you must:
- Have at least one debt.
- Have over £5,000 of debt
- Be resident in Scotland.
- Be able to repay your debt(s) after you’ve paid your living expenses.
- Have an income
Advantages
- You can freeze your interest charges
- Your payments are based on what you can reasonably afford
- You can protect your assets such as your home and car.
- You’ll have no direct contact with your creditors
- At the end of your Trust Deed period (normally 4 years) you will be debt-free.
Disadvantages
- Your credit rating will be affected
- A Trust Deed may not be an option with certain job types.
- If you are a homeowner and have equity in your home this may be released to pay to your creditors.
- Creditors can vote against a Trust Deed becoming “Protected”.
Frequently Asked Questions
Got a question? Maybe we have an answer for you here . . .
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.
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.
The minimum debt level is £5,000, this can include most unsecured debts from:
- Unsecured Bank Loans
- Payday Loans
- Credit Cards
- Council Tax Arrears
- Store Cards
- Catalogues
- Overdrafts
- Credit Unions
- Previous Mortgage (shortfall)
- Previous Car HP (shortfall)
- HMRC Bills (self-employed)
You don’t need to pay to set up 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 these fees are included in the monthly amount that you agree to pay back. These 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.
There’s no particular age restriction however each case will be considered on its own basis and risks.
Almost all unsecured debts such as:-
Unsecured Bank Loans
Payday Loans
Credit Cards
Council Tax Arrears
Store Cards
Catalogues
Overdrafts
Credit Unions
Previous Mortgage
Previous Car HP
HMRC Bills (self employed)
The main unsecured debt than can’t be included is fines, penalties and student loans.
More information on trust deeds :- protected trust deed page
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.
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.
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.
Student loans can’t be included in a Trust Deed but all other unsecured debts can be considered.
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.
Find out more
Contact an expert money advisor at Trust Deed Scotland to find out more about the debt solutions available to you. We are here to help you decide the best course of action to suit your individual needs and support you every step of the way. If you would like a fresh start, get in touch today.
