WHAT IS A TRUST DEED
A Protected Trust Deed in Scotland is a formal, legally binding arrangement between an individual and their creditors which lasts for a period of 4 years although a longer period can be considered. It is a legal agreement which can only be carried out through a licensed Insolvency Practitioner (IP) who will act as the Trustee. It is only available to residents of Scotland and is designed to help individuals who are unable to repay their debts (more than £5,000). At the end of the period any remaining debt is written off by creditors, subject to some exceptions. If you are based in England or Wales an IVA may be a suitable alternative.
How does a Scottish Trust Deed work?
Consult an Insolvency Practitioner who will act as your Trustee if you decide to proceed. They will sit down with you and discuss your personal financial circumstances. This enables the Insolvency Practitioner (IP) to help you to draw up a realistic budget and to determine the level of affordable monthly payment you can make towards your debt.
This single monthly payment will replace all your other monthly repayments to existing creditors. This forms the basis of the Trust Deed which will be submitted for approval to creditors. It is an important step towards securing you protection from creditor action, from other forms of legal action or from your wages being arrested.
Once a Trust Deed is signed, your Trustee will send a proposal to your creditors, clearly detailing how much you propose to pay, how your assets, if any, will be dealt with and how much creditors can expect to receive over the lifetime of the Trust Deed.
Creditors have five weeks from the publication of a Notice in the Register of Insolvencies to either accept or object to the proposal. If no objections or objections which are not a majority in number or are less than one third in value of the debt are received, the Trust Deed achieves protected status. If sufficient objections are received then the Trust Deed will fail. If this were to happen your Trustee would resign and you would be given further advice.
If your creditors do not respond it is considered that they have agreed to the proposal.
Once your Trust Deed is protected your creditors are unable to take action against you to recover your debts.
If you are a homeowner, the level of equity, which is the difference between the value of your home and the amount you owe to the secured lender, is determined at the start of the Trust Deed. If you have a lot of equity in your home, it must be released to your Trustee to pay to your creditors. Your advisor will discuss with you the different ways to release your equity before you sign your Trust Deed. Every situation is different but it is highly unlikely that you will be forced by your Trustee to sell your property.
Once all payments have been made, normally over a period of 4 years, and all terms have been met, you will be issued with a discharge letter confirming this position. Your creditors who were included in the Trust Deed cannot pursue you for the balance of any amount still due to them.
A Scottish Trust Deed reduces unaffordable multiple payments to creditors to a single affordable monthly payment to the Trustee. It offers protection from creditors taking legal action against you, and protects your home and car from repossession.
- Payments are based on your circumstances and what you can reasonably afford to pay.
- Your Trustee will contact your creditors, which will remove the pressure of unwanted phone-calls and letters.
- All administration is dealt with by the Insolvency Practitioner.
- Once the Trust Deed has become “Protected” creditors cannot take legal action to recover their debts and are bound by the terms of the Trust Deed.
- It allows you to regain control of your finances
- All costs are met from your monthly contribution payments which you make into a bank account held in trust for creditors. The Trustees fees and expenses are agreed between him and your creditors and are deducted from your monthly contribution payment and, if appropriate, from the sale of any assets.
- At the end of the Trust Deed, normally a period of 4 years the balance of the debts included I your Trust Deed will be written off.
- If you are a homeowner and have equity in your home this must be released to pay to your creditors.
- There are ways to do this without the need to sell your home, for example by re-mortgaging or by a third party or family member making payments on your behalf.
- Creditors can vote against a Trust Deed becoming “Protected”.
- There are certain professional bodies which prevent members from signing a Trust Deed.
- You may find it difficult to obtain credit in the future. Credit reference agencies will assess the level of risk level based your on financial history which may include the Trust Deed.
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