A trust deed in Scotland is a voluntary agreement between a debtor and his or her creditors. It is one of the options that can be used when debt repayments are no longer affordable. Thousands of people each year choose to sign Scottish trust deeds to deal with serious debt difficulties.
In simple terms, a trust deed is a compromise between a debtor (who cannot afford to fully repay their debts) and his or her creditors (who would like to recover at least some of what is owed to them).
A trust deed is a formal insolvency procedure. This means that a specially qualified and regulated person (an insolvency practitioner) must be appointed to set up a trust deed arrangement between a debtor and his or her creditors. In connection to Scottish trust deeds, this insolvency practitioner is generally referred to as a “trustee”.
A trustee does not generally the work alone. The insolvency practitioners that handle trust deed cases tend to be senior members of the teams at insolvency practices, general accountancy firms, or specialist trust deed providers.
What Is The Process For Setting Up A Trust Deed?
A protected trust deed isn’t the only way to deal with problem debts. Many people would be better-advised to use other procedures. Therefore the first part of the process should be to take debt advice from a suitably qualified adviser.
There is no shortage of unqualified poor-quality debt advice on offer, and no shortage of evidence in our trust deed forum that some unethical advisers point clients towards the solution that makes them the most money. The good news is that there are plenty of qualified and professional debt and trust deed advisers, but a careful choice is required to make sure you find them.
If you are advised that a Scottish trust deed suits your circumstances and needs, and you agree with this analysis, the next stage is to find a great trust deed firm to handle this process for you. Once again a careful choice is required as the client feedback on various firms in our forum varies dramatically.
This firm will confirm your financial circumstances with you, collect the necessary details from you, and later present you with the trust deed documentation. Once you sign this documentation you become committed legally. It therefore makes sense to ensure in advance that you are fully aware of how things like extra income, your vehicle, or your home might be affected.
Your trustee will present your proposals to your creditors. Provided that there is not significant opposition to your proposals from your creditors, your trust deed will subsequently become protected.
What Is A Protected Trust Deed?
Once a trust deed becomes protected your included unsecured creditors will no longer be able to use legal recovery procedures to collect debts from you.
To achieve protected status your proposals are initially “advertised” in the Edinburgh Gazette (a professional publication which is publicly available but not widely distributed). The traditional purpose of this advertisement is to alert any creditors that may not have been circularised by the trustee with details of your proposals.
Five weeks later your trust deed will become a protected trust deed provided that a large number of your creditors have not objected, or providing that a major creditor (or combination of creditors) has not objected.
Why Do Creditors Tend To Agree To Trust Deeds?
Our own advice team (who are all professionally qualified debt advisers) are often asked by enquirers why creditors tend to accept trust deeds.
Scottish trust deeds can be a highly effective debt solution and are used with success by thousands of people around Scotland each year. They should however be viewed as a last resort, or as an alternative to bankruptcy, when debt problems have become serious.
Creditors tend to look at trust deeds in these terms. They are looking to make a commercial decision as to whether a proposed trust deed offers them the best prospect of making a recovery of some of the money owed to them. Where a debt problem is serious, and a trust deed is structured in a fair and reasonable way, Scottish trust deeds tend to offer them a better return on the debts than would have been the case in bankruptcy.
Insolvency firms and creditors communicate about the acceptance criteria for trust deeds. Good trust deed providers therefore broadly understand what individual creditors will expect in order to gain their agreement to a trust deed becoming protected. Clients of these firms can therefore often be reassured that their trust deeds are highly likely to become protected.
Further Information And Advice
The Scottish Debt Arrangement Scheme
Sequestration (Bankruptcy) In Scotland
Trust Deed Scotland Advice Forum
Our Panel Of Trust Deed Experts
Some Potential Disadvantages Of Scottish Trust Deeds
Anyone entering into a trust deed in Scotland should clarify carefully with the Licenced Insolvency Practitioner the implications for their home, their car, and any other significant assets that they own. Home and car owners may be required to release equity from these assets for example.
If it is possible to obtain an increased mortgage during a trust deed, homeowners may be required to do so in order to release money to help repay their creditors. A mortgage obtained during a trust deed is likely to be on less favourable terms than might otherwise be achieved (for example the interest rates may be higher). If a homeowner with equity is unable to remortgage during their trust deed, and the money cannot be raised by other means, their home may be at risk of being sold to release the equity.
Your expenditure during a protected trust deed will be restricted in order that you can pay what you can reasonably afford towards your debts. Only unsecured debts included in a trust deed will be written off at the end of the process. If your trust deed fails you may become bankrupt.
Scottish Trust Deeds also have a very significant effect on a credit record which is likely to be similar to bankruptcy. Any previous Scottish Trust Deed may also need to be declared on mortgage applications for many years after the Scottish Trust Deed is completed even if it is no longer visible on a credit record.
Should you have questions about a Protected Trust Deed in Scotland please visit the forum or contact the support team on 0800 043 7201 or via the Contact Us form.
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