What is a Trust Deed?
A Trust Deed is the Scottish equivalent of an IVA. It is designed to provide people who cannot repay their debts with a way to establish, with the aid of a Trustee, a monthly repayment schedule based on what they can afford to pay. The Trust Deed will last for a specified period, usually four years. When the specified term of the arrangement comes to an end, and provided you have completed the obligations placed upon you by the terms of the Trust Deed, any debts that remain are written off.
You will need to have a minimum level of debt, at least £5,000, and a minimum level of disposable income before we can consider you for a Trust Deed. We will discuss this in more detail with you once we have conducted a full assessment of your situation, when we will let you know if this is an option for you.
If you decide to proceed with an application, Money Village will complete an application with you for submission to a Trustee, who is a qualified Insolvency Practitioner. If this is accepted, they will draw up repayment proposals for submission to your creditors.
Here is a summary of the main advantages and disadvantages of a Trust Deed –
• All interest and charges will be frozen.
• If the Trust Deed is registered as “protected”, creditors will be prevented from petitioning for the debtor’s sequestration.
• Pressure from creditors will be eased as the Trustee deals with all correspondence and queries.
• A Trust Deed is usually more flexible than sequestration. It also allows the individual to hold certain public offices, which may not be the case with sequestration.
• It may be possible for companies to continue trading and individuals to retain their directorships.
• Trust Deeds are not published in local newspapers.
• Priority monthly costs such as mortgage/rental payments, council tax, utility bills and child care costs are taken into account before determining a realistic monthly repayment to the Trust Deed so that these essentials remain affordable. Payments for these must be maintained by you.
• You make one regular payment into the Deed for the agreed term (also known as the ‘payment period’). After you successfully complete the payment period of your Protected Trust Deed, you are free from all debt included in it. The payment period will usually be 4 years although a shorter period can be agreed by the trustee. The payment period can exceed 4 years to take into account any missing contributions or if agreed by both yourself and the trustee.
• At least half in number of the creditors representing at least two thirds of the value of the debt must agree to the proposal before it is accepted so there is no guarantee it will be approved.
• Only unsecured debts can be included in a Trust Deed (these are loans not secured against property or other assets, e.g. mortgages). You also cannot include fines and penalties imposed by the courts, student loans and maintenance payments to an ex-spouse. Any debts not included in the Trust Deed will obviously remain outstanding and payments for these must be maintained by you. Non-payment may result in repossession of, or eviction from, your home or loss of essential goods and services.
• All assets and liabilities have to be declared. Your assets may be transferred to the trustee and may be sold. Your home may therefore be at risk or you may be required to release the equity in your property.
• If a property has to be remortgaged to release equity, the mortgage may attract higher interest rates. If you are unable to remortgage, it may be possible to arrange an extension to the 4 year term of the Trust Deed if reasonable and appropriate.
• Entering a Trust Deed will affect your credit rating for 6 years even though a Trust Deed will normally last for 4 years.
• You need to stick carefully to a budget for the duration of your Trust Deed and your income and expenditure will be reviewed regularly in this time. There are restrictions on the expenditure of a person who enters into a Trust Deed.
• If a Trust Deed fails then you will be liable for the balance of your debt and the balance of any fees already incurred. Your creditors are also entitled to petition for your sequestration. It is therefore essential that you maintain the agreed level of monthly payment.
• Details of the Protected Trust Deed will be held on a public register maintained by the Accountant in Bankruptcy.
How much will it cost?
The Trustee will charge a fee for setting up and administering your Trust Deed. This includes both the cost of setting up your Trust Deed and the on-going monitoring and supervision up to the day of completion. The fee the Trustee will charge will depend on your individual circumstances although the typical fee (taken from your regular monthly payment over the term of Trust Deed) for establishing and maintaining a Trust Deed is around £5,500 in total, although this can vary. The fees have to be disclosed to your creditors before they agree to a proposal so you will know before you commit to the Trust Deed what the fees will be. Money Village will be paid a referral fee by the Insolvency Practitioner, if we handle the application on your behalf.
Please note that it will take time for a Trust Deed to be established and there is no guarantee that your creditors will accept the proposal. Since you still need to make payments to your creditors, we will set up a Debt Management Plan (with no monthly fees) until the Trust Deed proposal is accepted. Fees on the Debt Management Plan would only commence if the Trust Deed proposal is rejected and you decide to continue with this option.
Whilst the Trust Deed is being established your creditors may still contact you directly. Please do not ignore them as this could result in collection actions, including default notices and litigation and the cost of default notices may be added to the debt. Please ask them to contact us.