If you have unsecured debts that you can't afford to repay in full over a realistic timeframe, but you can still afford to make smaller monthly payments, entering a Trust Deed could be a good solution. If you agree to a Trust Deed, you will:
- make a single, reduced payment every month, based on what you can afford to pay after you've covered your essential outgoings (for example, your rent or mortgage, food, utility bills, travel costs etc.)
- be protected from any further action from your unsecured lenders
- have any debt that you can't afford written off, usually after four years, once your Trust Deed has been successfully completed
- have a way of avoiding bankruptcy
There are consequences too, including the fact that your credit rating will be affected. It will show on your credit report for six years starting from the date your Trust Deed begins, so obtaining credit will be more difficult and/or more expensive during that time as a result of your Trust Deed. We’ll talk more about the consequences later in the guide.
Although once agreed it’s a legally binding arrangement, you don’t have to go to court to set one up, although a Trust Deed can only be set up by an Insolvency Practitioner who will normally go on to act as ‘Trustee’ and administer your Trust Deed. Before a Trust Deed can start, your debt advisor and the Trustee will help you put together the terms of your Trust Deed.
It contains details of your finances, including how much money you can afford to put towards your debts once your essential living costs have been taken care of. It will also explain if you have any property that will be included in your Trust Deed and how and when it will be dealt with. It then breaks this down into how much each individual lender will receive if the Trust Deed goes ahead. This is normally calculated on a 'pro rata' basis, meaning the amount each lender receives is proportionate with how much they are owed. It should show your lenders why a Trust Deed is the right option for everyone involved.
By law, your Trust Deed can go ahead as long as the terms of it are accepted by at least half of your unsecured lenders, or by lenders accounting for one-third or more of your debt. For example:
- Lender A £2,000
- Lender B £1,000
- Lender C £6,000
So, even if lenders A and B object, accounting for more than half the lenders, the Trust Deed can still go ahead as long as lender C is okay with it as they account for more than one-third of it. If this happens, your Trust Deed would include all the lenders, even those who objected. Your lenders must tell the Trustee if they object within five weeks of being made aware of the proposed terms or it’s assumed they have agreed.
It's important to note that debts taken on after your Trust Deed has started cannot be added to the arrangement. In fact, taking further credit without your Trust Deed supervisor's permission is a breach of the terms of your Trust Deed and could result in bankruptcy.
Why are they only available in Scotland?
Trust Deeds are only available to Scottish residents because different countries have different rules. From buying your home and your entitlement to benefits, to insolvency solutions, the way one country thinks things should be done can be very different to the way another one handles things.