A Trust Deed is a form of insolvency, and could help you if you’re struggling to repay unsecured debts, such as credit cards, unsecured personal loans, store cards, catalogue debts, payday loans and overdrafts.
As long as the terms of your Trust Deed are accepted by at least half of your unsecured lenders, or by lenders accounting for one-third or more of your debt, it will become 'protected' by law. However, it’s impossible for anyone, including us at the Debt Advisory Centre, to guarantee that half your lenders will agree, as they’re under no obligation to do so.
If it becomes protected, a Trust Deed is a legally binding arrangement between you and your lenders, which enables you to repay as much of your unsecured debts as you can over a four year period. Anything that’s left outstanding at the end of the four years will be written off, however a Trust Deed can sometimes last longer than four years. This might happen if you have a payment break, for example. The extra time will be added to the end of your Trust Deed, extending its length.
You will make one regular payment to your Trustee, that’s the person who administers your Trust Deed, who then distributes the money to your lenders after payment of their fees and costs. Your lenders will expect you to pay as much as, but never more than, you can afford, so you may have to cut-back on any spending they believe is excessive.
The payment will take into consideration your essential living costs, such as your rent or mortgage payments and food, utility and travel costs. You would be expected to sell any valuable assets you own and use the money to pay towards what you owe, although you are entitled to keep certain assets if they are essential, such household goods, cars (depending on their value) or tools that you need for work.
Unlike sequestration, where homeowners may be asked to sell their property to repay their lenders, a Trust Deed can help you stay in your home. You will agree with your Trustee at the outset how you wish to deal with your property, but if you have any equity in it, you will probably be asked to try to remortgage to release the equity and pay it into your Trust Deed.
Remortgaging whilst on a Trust Deed is likely to be more difficult and attract higher interest rates, but you’ll never be told to sell. If you struggle to remortgage, you will be expected to make up to 12 months extra repayments instead (but only up to the value of your equity). Please note, if you don’t keep up with the payments agreed in your Trust Deed, you could still potentially put yourself at risk of sequestration. If that happens, you can be forced to sell your home.
Is a Trust Deed the best Scottish debt solution for me?
There's no such thing as a solution that's 'the best' for everyone. A Trust Deed could be the most appropriate Scottish solution for you, it depends on your financial situation.
It’s important to speak to a debt advisor, as they can help you decide on the most suitable solution for your circumstances. We’ll cover the alternatives to Trust Deeds later on in the guide.