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What is a Trust Deed?
Here are a few questions to consider. Do you live in Scotland? Do you have a significant amount of unsecured debt? Are you concerned that you can't afford to repay it in the foreseeable future?
If your answer is 'yes' to all these questions, you'll need to find a way of repaying what you can afford as soon as possible, or else risk mounting charges that could quickly make your financial situation even worse.
A Trust Deed is one potential approach. It's a form of insolvency available exclusively in Scotland, and could help you if you're struggling to repay unsecured debts, e.g. credit cards, personal loans and overdrafts.
Here we'll look at how a Trust Deed works.
Trust Deeds - how do they work?
If you can't keep up with your repayments towards a significant amount of unsecured debt, entering a Trust Deed could be the answer to the problem.
Once a Trust Deed is agreed with your lenders, and it becomes a Protected Trust Deed, it's designed to:
- Lower your monthly repayments to a level you can afford, once your essential living costs have been taken care of
- Prevent any further legal action from your unsecured lenders
- Free you of any included debts you can't afford to repay - when it successfully ends (in most cases, after three years)
- Give you a way of avoiding bankruptcy (or 'sequestration' as it's sometimes known in Scotland).
Trust Deeds - how could I set one up?
As with all debt solutions, it's important to find out if a Trust Deed really is the best option for you before you agree to one.
Speaking to a professional debt adviser should help you find out what your options are, and whether or not a Trust Deed is the most suitable approach. If it is, it will require the expertise of an Insolvency Practitioner (IP) to set one up.
Basically, the IP will talk you through your financial situation, working out how much unsecured debt you owe your lenders overall, and how much you can reasonably afford to repay per month. The IP will provide all this information in a Trust Deed proposal, which will then be sent to your lenders for review.
Then, unless there are objections from more than 50% of your unsecured lenders (or those who 'own' more than a third of your debt), your Trust Deed will become a Protected Trust Deed. This means that both you and your lenders must abide by its terms until it successfully ends.
Trust Deeds - what are the downsides?
There are also some disadvantages to a Trust Deed to consider.
Entering a Trust Deed means that you:
- Will have your credit rating damaged for six years from the day it begins
- May have to release some equity if you're a homeowner
- Won't be able to take out any further credit while it's running.
Trust Deeds - is one right for me?
A Trust Deed is just one potential debt solution, out of many. You should get some professional advice first to help you decide which approach is best for you, before you commit yourself to anything.
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