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Tackling your debts

How does a Trust Deed work?

Posted 25 July 2016 by Christine Walsh

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Let’s take a look at one solution for insolvency if you live in Scotland.

If you’re living in Scotland and you’re struggling to repay your unsecured debts, there are a few debt solutions that could help. One of these solutions is a Trust Deed, a way to write off some of your debt if you can’t afford to repay it in a reasonable amount of time.

Trust Deeds aren’t suitable for everyone so it’s important you speak to a debt expert so you can decide which debt solution is best for your situation. We’re going to take you through how Trust Deeds work to help you decide whether it’s right for you. 

Do you qualify?

You can only apply for a Trust Deed if you live in Scotland. If you live in England, Wales or Northern Ireland, an IVA is a similar debt solution.

But living in Scotland doesn’t guarantee you’ll qualify for a Trust Deed. You’ll also need to owe at least £5,000 in unsecured debt, so a Trust Deed won’t deal with your mortgage or secured loans. We’ll take you through the types of debts you can include in a Trust Deed below. 

You’ll need to be insolvent to enter into a Trust Deed. This means you can’t afford to repay your debts when they’re due and you don’t have any assets to sell to pay off what you owe. You’ll need to commit to a regular payment once a month into the Trust Deed and you’ll have to ask your lenders whether they’ll accept the debt solution. As long as at least half of your unsecured lenders – or lenders who ‘own’ at least a third of your debt – accept the terms of your Trust Deed, it can go forwards.

What do you pay?

There isn’t a set amount you have to pay on a Trust Deed. When you apply for the Scottish debt solution, an Insolvency Practitioner will have a look to see how much you’ve got coming in each month and how much you’ve got going out. This is your income and expenditure and whatever money you have left each month, after your essential bills have been paid, will go into your Trust Deed.

This means your Trust Deed payments will always be affordable for you – so you won’t ever have to pay more money than you actually have. Your Trustee – the person who manages your Trust Deed – will share this money out between your creditors.

You will have some fees for setting up your Trust Deed and maintaining it. However, these will come out of your monthly Trust Deed payments – they’re not an extra charge.

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What debts can you include?

As we explained above, Trust Deeds are only for unsecured debts. That means that if you’re struggling with your mortgage or repayments on a secured loan, a Trust Deed wouldn’t help you with these. But by reducing the repayments on your unsecured debts, you should find that you are better able to afford to keep up with your mortgage and secured loan repayments, as well as other priority bills.

And if you’ve got credit cards, store cards, unsecured loans, payday loans or catalogue debts, you can include these in a Trust Deed. You can also include utility bills arrears from a previous provider and HMRC debts. Speak to an Insolvency Practitioner if you’re not sure whether your debts are suitable for a debt solution.

What else to consider

Like all debt solutions, Trust Deeds have their drawbacks as well as their benefits. A Trust Deed will appear on your credit history for six years from when it first starts. This will show that you’re not following the original credit agreements and if you apply for any credit within that six years, lenders will be able to see this when they run a credit check on you. They might be more likely to turn you down or if they do accept you, it could be at a higher interest rate.

If you’re a homeowner, you’ll also be expected to release equity from your property and pay this into your Trust Deed. This means you’ll remortgage and you could get a higher interest rate because of your debt solution. If this isn’t possible, your Trust Deed could be extended for up to a further 12 months.

Trust Deeds can affect whether you can do certain jobs. For example, if you’re an accountant, a solicitor, a judge, a police officer or a prison officer, having a Trust Deed might cause problems for you. When you apply for a Trust Deed, it’s best to ask the debt advisor if it’s likely to affect your job. If it will, the debt advisor would probably recommend another debt solution.

Make sure to get all the facts before you apply for a Trust Deed. You can get free and impartial information from the Money Advice Service. You can also get in touch with our debt advisors using any of the options on the left. They’ll look at your circumstances and help you to decide whether a Trust Deed is right for you or if another solution would be better suited.

Still not sure of a few of the finer points on Trust Deeds? Check out our Trust Deeds FAQs blog for some of the most commonly asked questions.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.