Money VillageTrust Deeds
What is a Trust Deed?
A Trust Deed is the Scottish equivalent of an IVA. It is a formal arrangement that is used in Scotland where a consumer grants a ‘deed’ in favour of the trustee which transfers his/her assets to the trustee for the benefit of creditors.
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 three years. When the specified term of the arrangement comes to an end, any debts that remain are written off.
A Trust Deed will normally stop legal action and protect you and your home. Provided certain conditions are met, the Trust Deed may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s sequestration (the Scottish legal term for bankruptcy).
Trust Deeds only apply where a debtor does not have enough disposable income (the amount remaining after daily living costs are met) to pay his/her unsecured contracted credit repayments.
You will need to have a minimum level of debt, usually at least £8,000, 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.
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 until the Trust Deed proposal is accepted. Upon acceptance, the set-up fees for the Debt Management Plan will be refunded to you.
ADVANTAGES
• All interest and charges will be frozen.
• As stated above, 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.
• After you successfully complete the term of your Protected Trust Deed, you are free from all debt included in it.
DISADVANTAGES
• 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.
• Only unsecured debts can be included in a Trust Deed (these are debts not secured against property or other assets, e.g. mortgages). Any other debts not included in the Trust Deed will obviously remain outstanding.
• All assets and liabilities have to be declared. You may be required to release equity in your property and assets of large value will be realised.
• If a property has to be remortgaged to release equity, the mortgage may attract higher interest rates.
• Entering a Trust Deed will affect your credit rating (see warning below).
• 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.
• 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 for establishing and maintaining a Trust Deed is around £5,500. Your Trustee will be paid before any money is available to repay your creditors.
Warning
As with an IVA, if a Trust Deed fails then you will be liable for the balance of your debt and the balance of any fees already incurred. It is therefore essential that you maintain the agreed level of monthly payment.
Your credit rating will be affected for 6 years even though a Trust Deed will normally last for 3 years.