What is a Trust Deed?
A Trust Deed, or a ‘Protected Trust Deed’, is a legally binding Scottish debt solution. It allows someone who is in debt to reduce their monthly payments to one affordable amount based on their income and expenditure. Their debts interest and fees are frozen and, after paying this reduced payment for a minimum of 4 years, the remaining debt is written off. Creditors can no longer legally contact the debtor and can only communicate with the Trust Deed provider.
Unsecured debts are included in the Trust Deed. This includes:
- Credit cards
- Store cards
- Pay day loans
- Council tax arrears
- Rent arrears
Creditors of these debts are paid by an Insolvency Practitioner, acting as a Trustee, using the affordable monthly payments that are paid into the Trust Deed based on the proportion of the overall debt that was owed by the debtor. A Trustee’s fees is similarly taken from this monthly payment, so there are no extra, hidden fees. Some providers charge a set-up fee if a Trust Deed is rejected; we don’t.
Significantly valuable assets with a lot of equity, may need to have this equity released to be added to the Trust Deed fund. However, this, unlike bankruptcy or sequestration, this does not mean it is necessary for the assets to be sold. Houses can have their equity released by remortgaging the property. Only cars valued at over £3,000 need to have their equity released by trading them in for a cheaper model. Hire Purchase agreements cannot be included in a Trust Deed, but their repayment will be factored into monthly repayment costs.
Other debts that cannot be included with a Trust Deed include:
- Student Loans
- Court Fines
- Other secured loans
While joint debts can be included in a Trust Deed, Joint Trust Deeds do not exist. This means that if one party enters into a Trust Deed, the other is still liable for the full amount unless they both enter into Trust Deeds. In this case, following successful completion of both Trust Deeds, the remaining debt would be written off.
The most crucial benefits of a Protected Trust Deed are:
- There is a fixed payment term. This means that, providing all conditions of the Trust Deed have been met, repayment is limited to a set period of time. This is usually four years.
- Debt is written off. Following this fixed payment term, the remainder of the debt is written off.
- No more contact from creditors. As a formal and legal debt solution, with a Protected Trust Deed creditors cannot contacted their debtors. They must also freeze interest, fees and charges.
There are also risks, however, and these include:
- Creditors can object. Creditors have the ability to stop a Trust Deed from becoming ‘Protected’. They need to either be in the majority, or own the majority of the total debt in order to succeed in rejecting the Trust Deed.
- Credit ratings may be affected. Trust Deeds are placed on the Register of Insolvencies, which is accessible online. This means that credit rating agencies usually add Trust Deeds to people’s credit files, which can affect their credit ratings and make it more difficult to take out credit. This entry into the Register is removed after six years from the beginning of the arrangement.
- Asset equity may be required to be released. This could mean that you need to remortgage your home, or your car may need to be traded in for a cheaper model.