The low-down on a trust deed for the self-employed
2nd September 2011
When confronted by debts that are no longer affordable, many self-employed people fear that regular debt solution options, such as a protected trust deed, are not available to them. This fear can result from a number of concerns such as whether they can continue to run their business, whether their business will be able to operate a bank account and how variable levels of income and continuing requirements to access credit for business purposes will work out. In this article we’ll look into the issues concerning the self-employed and the possible use of a Scottish trust deed.
The first thing to say is that there is nothing to stop a self-employed person signing a Scottish trust deed. Every year many self-employed people do so and then go on to deal with their debts in the exact same way as employed persons in a trust deed.
Primarily in this article we’re going to focus on sole traders. However, much of the content will also be relevant to self-employed persons who operate a limited company, perhaps in the role of a Director, and who feel they need a trust deed. It’s typically possible to carry on as a Director though some advice from the trust deed provider may be required to handle this process appropriately depending upon exactly how the company is set up.
A major concern of the self-employed is the fact that their income varies substantially from month to month. In fact, this very variable income may in itself have contributed to the debts building up. Professional debt advisers understand that the self-employed have variable levels of income so the establishment of a monthly trust deed contribution will be based upon an analysis of the business over a reasonable period of time.
Before allowing a trust deed the accounts of the business will need to be reviewed. This should allow an estimate to be made of average monthly income using historical data (perhaps over six or twelve months). Secondly, a trading projection may be required and assistance in this should be provided by the trust deed advisor. This will help to confirm whether the trust deed appears viable and suitable in the future. From past data and future projections the client and their trust deed provider should be able to establish a fair and manageable contribution. The self-employed client will set money aside in good months to cover any poor months that may arise in the future.
A sole trader will need to take steps when their business bank account is held with a bank that they also have personal debts with. The bank is very likely to close down an account if a protected trust deed is established so a new business account with an unconnected bank will be required in advance. It is wise to avoid setting up a new account with credit facilities; the chances of this account being closed by the bank subsequently will be unnecessarily high.
What about business debts? As a sole trader, business debts are little different to personal debts and will be included in the trust deed creditor list.
The trust deed situation will become much more complicated if your business has a fundamental requirement to use credit in order to be able to trade. Sourcing credit in the aftermath of signing a Scottish trust deed may be almost impossible. Where a business must use credit to survive the sole trader may have to make some tough decisions about whether their business will ever be strong enough to pay off their debts or whether the business must be relinquished in order to deal with the underlying debt problem that exists.
There is no doubt that self-employed people can use a Scottish trust deed, but it is clearly more complex than would be the case for employed person with a steady fixed income. For this reason high-quality personal advice will be required prior to signing the trust deed. In these circumstances the choice of the right trust deed provider is even more important than it already is for those with more straightforward circumstances. Avoiding call-centre based operations might be a good starting point; you need a senior and experienced adviser to visit you so that all of the ramifications of a trust deed can be discussed and dealt with before going ahead.
At www.trust-deed.co.uk we may be able to help. Our small and dedicated team are experienced at dealing with all trust deed related queries. Give us a call on 0800 043 7201 or use our one-step query service on our Contact Us page to get fast, expert and confidential trust deed advice.
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