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What Is a Trust Deed In Scotland?
Only available to residents of Scotland, a Trust Deed is a legally binding, formal debt solution. It is designed for people who are struggling with debts of £5,000 or over. If you are a resident of England, Wales or Northern Ireland, then an IVA (Individual Voluntary Arrangement) is a similar solution, but it is important to note there are differences to the benefits, downsides and fees.
A Trust Deed is an arrangement between you and an Insolvency Practitioner (IP) whereby your debt is reduced into one affordable monthly payment. An IP is a qualified professional, licenced to act on your behalf in the role of a ‘Trustee’.
Once your Trust Deed has been agreed and set up, your creditors can no longer take action against you and won’t be able to contact you, but it will affect your credit rating for six years, making it difficult to get further credit during this period. Your details will also be placed on The Register of Insolvencies, which is a public record, while you clear your debts.
For the duration of your Trust Deed, all fees and interest relating to your debt is frozen and once completed, the remainder of your debt is written off, allowing you to begin again, debt free.
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How Does Trust Deed Scotland Work?
When applying for a Trust Deed, your financial information will be analysed by the Insolvency Practitioner to check how much you can afford to contribute monthly. This is done by calculating your essential living costs and deciding what surplus income you may have.
They will also investigate your assets, to determine whether any can be sold to contribute towards your debt. You will usually be able to keep an essential vehicle as long as it is worth no more than £3,000.
If you are a homeowner then you may be required to release equity in your property if you have any. This money will be taken and used to contribute towards your debt.
During the application process, your IP will contact your creditors on your behalf and inform them of the situation. During this time, the aim of the Insolvency Practitioner is the have the Trust Deed awarded a ‘Protected’ status. This is achieved if the majority of your creditors agree to the proposal. Creditors are granted a five-week period to send a written objection (if no objection is received, it is assumed that the proposal has been approved). Once the ‘Protected’ status has been approved none of your creditors, including any that objected’, will be able to contact you or take any further action.
If ‘Protected’ status is not granted, then it does not necessarily mean you cannot continue with the Trust Deed, but you will remain open to action from your creditors, who could decide to have you sequestrated.
From this point onwards, you will make your monthly payment to the Insolvency Practitioner who will divide it up and distribute it to your creditors. This will normally last for 4 years, after which, any outstanding debt is written off.
You will have restrictions placed upon your spending during the Trust Deed and if your situation changes e.g. you lose your job or you inherit some money, you will be expected to notify the Insolvency Practitioner. As long as you stick to the budget that has been agreed between you and the IP and keep up with the payments for the 4-year period then you will be discharged from the Trust Deed and your remaining debt will be written off.
However, if you do fail to keep up with the IVA payments, there is a risk of bankruptcy.
It is also worth noting that your details will be added to the Register of Insolvencies (ROI) which is maintained by the AiB (Accountant in Bankruptcy. This is a public record and as such is available to the general public.
Do I Qualify for a Trust Deed?
In order to qualify for a Trust Deed, you must meet the following criteria:
Be a resident of Scotland, now or in the last 12 months
Have unsecured debts of at least £5,000
Have sufficient income to pay a monthly contribution. The Trust Deed should allow for at least 10% of your debt to be repaid
Be unable to pay your debts since the value of your credit is greater than that of your assets
Can A Trust Deed Affect My Job?
If you have a job in the financial sector, legal profession, or where you are responsible for budgets etc. then having a Trust Deed may affect your employment and could result in disciplinary action. If you have any doubts concerning your job, then we advise you to contact your HR department and discuss this with them before you apply for your Trust Deed.
What Are the Advantages of a Trust Deed?
You could be debt free within 4 years
Your creditors will no longer be able to chase you
You will be able to keep a car worth no more than £3,000
You won’t need to appear in court
What Are the Disadvantages of a Trust Deed?
An Insolvency Practitioner may charge a fee for their services which will be taken from your monthly payment.
A Trust Deed may affect your job, so it is worth checking with your HR department
There is a risk of bankruptcy if the Trust Deed fails
From the date the arrangement is agreed, your credit rating will be affected for 6 years.
Who Can Help Me With My Debt?
If you are struggling with your debt, then there are several options that may suit your circumstances. Contact us at IVA4Me to find out how you could become debt free.