Trust Deed Pros and Cons
As a legal, formal debt solution, there are many benefits to a Protected Trust Deed.
The key advantages include:
- The fixed payment term
Trust Deeds generally last for four years. This means that you could become free of your unsecured debts in a few years.
- Your debts are written off
After you have satisfied the conditions of your Trust Deed, your remaining debt will be written off. This allows you to have a fresh start significantly sooner.
- Creditors stopped
We understand that phone calls, letters and even home visits are a huge reason for the stress that comes with being in debt, but as it is a legal solution, once your Trust Deed becomes ‘protected’, your creditors who are named in the Trust Deed are no longer allowed to contact you. They can only communicate with your Trust Deed provider.
- Keep your assets
Sequestration or bankruptcy can be hugely disruptive, and the biggest reason for that is that, often, your assets, such as your home, your car and your belongings, are sold off in order to pay off your debts. With a Trust Deed, selling your assets is not a method used to pay your creditors.
- No hidden fees, or application fees
Your Trustee is paid using your monthly contributions, which is determined by calculating what you can genuinely afford. This means that there are no extra, hidden fees to surprise you. Although some providers may charge you for the costs associated with setting up a Trust Deed if your Trust Deed is rejected, we never will.
This does not mean that there are not any risks or disadvantages in a Trust Deed.
The key disadvantages include:
- Creditors can object
In order for your Trust Deed to gain ‘protected’ status, your creditors must approve it, and there is always a risk that they might not vote to approve it. However, they don’t all need to vote in favour of the Trust Deed. You need a majority of your creditors to agree, and for those who object to own less than one-third of your debt.
- Your credit score can be negatively impacted
As you are placed on the Register of Insolvencies, your Trust Deed is likely to be noted on your credit file. This can have the effect of lowering your credit score, which can make it harder to take out credit in the future. This is removed, however, six years after the beginning of your Trust Deed.
- Your employment can be affected
Some employment restricts whether you are able to get a Trust Deed in Scotland or not. For example, you may not be able to act as a director of a limited company while you have a Trust Deed. It is a good idea to check your employment contract and consider your ideal career progression before you enter into a Trust Deed.
- Asset equity may be included
As well as your monthly affordable payments, it is possible that your creditors will want to utilise your assets for payment. Unlike with sequestration and bankruptcy, this does not mean you have to sell your property, but it may mean you are required to release its equity, if it is considered large enough. Equity is the amount of money you would make were you to sell the asset. For example, if you own a car worth significantly more than £3,000 then you will be asked to trade it in for a less expensive model and add the profits to your Trust Deed. You would never be left without a car.