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Tackling your debts

What is a Trust Deed? Part 2

Posted 10 November 2015

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Do you have problem debt and live in Scotland? If so, a Trust Deed could help – read on to learn how they work.

Welcome to part 2 of What is a Trust Deed? Today we’re going to look at the debts that you can include in a trust deed and the restrictions you’ll experience when you’re on it.

During the Trust Deed

Trust Deeds are designed to be fair to both you and your creditors. When you first start going through the process, you will speak with your Trustee about your finances, so that they can determine how much you can put towards your debts each month. The Trustee can then create what’s called a Trust Deed proposal, detailing how it could work for your situation, and send this to your creditors.  Your creditors have five weeks to respond and make it clear how they feel about the proposal – if they don’t respond during that time, it is assumed that they’ve agreed to the plan.

Trust Deeds can be either protected or unprotected. If your Trust Deed becomes protected, it means that your creditors no longer have the power to take you to court because of your outstanding debts. Whether or not the Trust Deed becomes protected does depend on your creditors. If half of your creditors object, or a third in terms of the amount of money that you owe, then it would not become protected. Even if you didn’t manage to get enough of your creditors to agree to the protected Trust Deed, this doesn’t mean the whole thing fails. It just means that the creditors could still take you to court or try to make you go through sequestration. If you’re forced to go ahead with an unprotected Trust Deed, it might be best to look into other options available in Scotland, such as a Debt Arrangement Scheme or Sequestration, but you should consult with your Trustee before making that decision.

 

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Towards the end of the Trust Deed (which typically lasts for four years) you may need to release equity from your property, if you are a homeowner. The equity is calculated by taking away anything that you owe on the property from what is it worth. So to bring that to life: if the value was £150,000 when the Trustee came to look at this, and you owed £125,000 on it, then you have £25,000 equity in your house.

If, when you start the Trust Deed, you have less than £5,000 equity, you’d need to pay £550 (known as a nominal fee) to protect the property. Ideally this would be paid by a third party in the first 12 months of the Trust Deed, however if this was not possible then it may be possible to extend the length of arrangement so that this can be paid. This means that you won’t be expected to release equity from it during the Trust Deed even if there’s more equity as the end of the arrangement than there was at the start.

If you do have more than £5,000 equity then you’d be expected to attempt to remortgage towards the end, and if this wasn’t possible, you’d simply carry on with your payments into the Trust Deed for a further 12 months.

After the arrangement has finished, if everything has gone to plan, you will be discharged and your creditors cannot pursue you for anything left over that you still owe – it is just written off. 

Okay, that's part 2 done. Tomorrow we'll finish our look at trust deeds with details on what other points you should consider before entering into one. 

 

 

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.