If you are struggling to cope with unaffordable debt in Scotland, you may decide to pursue the idea of entering into a Scottish Trust Deed.
A Trust Deed is a formal debt solution and can be either voluntary or protected.
Depending on your unique situation you will need to decide how you are going to face your debt problems. Entering into a Trust Deed is not a decision that should be taken lightly.
As experts in providing debt advice in Scotland, Trust Deed Scotland® believes that it is important that debtors fully understand the debt solution options that are available to them.
Here is our guide on the difference between Voluntary and Protected Trust Deeds.
Voluntary Trust Deed Definition
A voluntary Scottish Trust Deed is a financial agreement that is made between a debtor and their creditors.
The voluntary Trust Deed stipulates that the debtor must repay part, or all of what they owe. The Trust Deed will transfer the debtor’s rights to the things that they own, to a trustee, who will sell these items to pay creditors. This type of trust deed will usually require a contribution from income for a set period of around 48 months.
Anyone overseeing a voluntary trust deed must be a qualified insolvency practitioner. Insolvency practitioners are regulated by law and should be members of an approved governing body. The voluntary trust is not a binding contract on the part of the creditors.
However, if they agree to the terms of the Trust Deed, the Trust Deed ceases being voluntary and becomes protected instead. Therefore voluntary or ‘Unprotected’ Trust Deeds are just the same as a Protected Trust Deed in its initial stages.
Protected Trust Deed Definition
The Protected Trust Deed is a specialised product that binds all creditors to a contract.
The trust deed dictates a list of terms and conditions that the debtor must adhere to.
As long as the debtor complies with the terms of their protected trust deed, the creditors will be unable to take any further action to pursue any outstanding debt. This means that creditors will not be entitled to make the debtor bankrupt.
A Protected Trust Deed will also prevent the debtor from applying for bankruptcy or for any other debt payment programme.
If the debtor does acquire any new debts after they signed their trust deed, they will not be protected against any action by their new creditors. A protected trust deed will require the debtor to have debt of at least £5,000.
Why do creditors agree to Voluntary and Protected Trust Deeds?
Creditors are looking to make the best financial decision to suit their own needs.
They will look at a proposed Trust Deed arrangement offer and consider whether or not this is the best prospect for making a recovery of some of the money that is owed to them.
If a debtor’s financial situation has become serious, Trust Deeds offer a structured debt repayment solution, which is a fair process and which aids both parties.
Typically, Trust Deeds offer a better return on debts over Sequestration. If Sequestration appears to be the only real alternative, a lender is likely to support a Protected Trust Deed, rather than a Voluntary Scottish Trust Deed.
A reliable Trust Deed provider or insolvency firm will broadly understand what creditors will expect in order to gain their agreement for a Protected Trust Deed. This means that an expert trust deed firm are likely to be able to get your trust deed protected. It will be the responsibility of your trustee to issue any payments.
How will any form of Trust Deed in Scotland affect me?
Any form of Trust Deed should be carefully considered due to the consequence it may have on your professional or financial life.
The conditions of a Trust Deed will stipulate that you will have to keep to a strict budget throughout the full term of your Trust Deed.
This term is typically four years, meaning you will have limited financial freedom during this time. It is also important to understand that your details will be added to a public register titles the Register of Insolvencies for a period of up to five years.
This is available for viewing by the general public and will contain all of the details of your current Protected Trust Deeds.
You can also consider alternatives, such as the Debt Arrangement Scheme (Scotland).