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Guide to Trust Deeds in Scotland

Could a Scottish Trust Deed Help You

Qualification Criteria

10 Advantages of Trust Deeds

10 Disadvantages of Trust Deeds

What Does “Protected” Mean?

Moratoriums

 

Setting up your Scottish trust deed will take a few weeks, which can be a worry if a creditor is trying to enforce a debt against you. Until your arrangement becomes a protected trust deed, you do not have legal protection from Sheriff Officers.

 

A moratorium stops your creditors from using enforcement action against you. This procedure normally provides six weeks of protection and can only be used once per year.

 

Due to the financial pressures created by the Covid-19 pandemic, emergency legislation has currently extended this protection period to six months and you can apply more than once each year.

 

Your debt adviser can apply for a moratorium on your behalf, or you can apply yourself. Remember that your personal details will be published on the Register of Insolvencies, your credit rating may be affected, and your debt may increase due to added interest and charges.

Included Debts

You must include all qualifying debts that exist on the date of signing your trust deed. The majority of unsecured debts are covered by this debt solution:

 

 

Debts owed to family or friends have no special status and you will receive no extra allowance to keep repaying them.

 

Think carefully about any joint debts you owe. Your trust deed only protects you (it does not protect your joint borrower).

 

Debts that resulted from gambling are included. Your trustee might require you to supply evidence (like bank statements) to show that you have stopped gambling.

 

Excluded Debts

Most secured debts are excluded from trust deeds. This includes mortgages, hire-purchase agreements, and some other types of vehicle finance like logbook loans.

 

Student loans aren't included; you’ll remain liable for repayment.

 

Overpayments of social security and Court fines may be excluded. Get direct personal advice if you have debts of these type.

 

How Long does a Trust Deed Last?

 

A protected trust deed lasts for a minimum of four years by law, but a longer term may be suggested to help win creditor support.

 

Extra payments may be required in lieu of assets, such as equity in your home or a car worth more than £3,000. An extended payment term (beyond the four year minimum) is one way to deal with assets like these.

 

Your plan can be extended if you miss payments or if your monthly payment amount is reduced. It could be extended if you fail to disclose pay increases or a windfall you receive.

 

You won't get discharged immediately when you make your final payment. Your trustee has some work to do to process your discharge (and later to process their own discharge).

 

An early discharge (before four years) can only happen if you have paid all of the following:

 

1. The total debt owed at the start

2. Interest on these debts

3. Your trustee’s fees and costs

 

This is most likely to happen if you receive a lump sum, such as an inheritance for example.

 

Is Your Employment at Risk?

 

Most people can enter a personal insolvency process without any employment problems. Check your contract of employment for clauses about insolvency, bankruptcy, or “entering into arrangements with creditors”.

 

Some workers have special disclosure duties that employers impose for risk-control purposes. These duties may apply to police or prison officers, and to members of the armed forces.

 

Important extra considerations apply if you’re a company director or if you are self-employed.

 

Some types of professionals may be unable to use a Scottish trust deed without risking their job. Caution should be exercised by solicitors, accountants, bank employees, and others working the wider financial services sector. Other professionals should make checks with their employer and/or regulatory body.

 

Joint Trust Deeds

 

Couples each enter into their own trust deed in Scotland because joint trust deeds don’t technically exist.

 

Couples can however benefit from a single set-up process, with both of you working with the same debt adviser to create a coordinated payment proposal.

 

You don’t have to act together and could instead each use a different debt solution. Acting separately could produce a better household outcome (even if you have joint debts).

 

Using a Trust Deed More Than Once

 

Having used a protected trust deed before doesn’t prevent you from using this debt relief process again. You can also use this debt solution if you’ve been bankrupt previously.

 

Trustees understand people can get into debt again and the major creditors still use the same acceptance criteria.

 

Even if your last Scottish trust deed failed, you are still allowed to begin the process again. The only restriction is that you must be formally discharged from the previous agreement.

 

How do Trust Deeds Work?

 

A trust deed in Scotland operates through four main stages:

 

Stage1 - Fact-Finding and Advice

 

You contact a debt adviser; they ask questions to get an understanding of your financial situation. They’ll ask you about your income, bills, debts, and any assets you own.

 

The adviser tells you which debt solutions you can use and explains the benefits and drawbacks of each. You can ask questions so that you can make an informed choice.

 

Stage 2 – Set-Up Process

 

You provide your adviser with documents such as bank statements, payslips, benefit award letters, and household bills.

 

This information verifies your recorded income and expenditure information, which is used to work out your monthly payment.

 

If you own assets, a written plan is drawn up explaining how (if at all) they’ll be dealt with. This is most common for homeowners.

 

You may be advised to open a new bank account.

 

Your trustee produces your formal trust deed document (which is unique to you rather than being a standard document). This document defines how your trust deed will operate, so read it carefully before you sign it and become legally committed.

 

Your personal details get added to the Register of Insolvencies and your trustee sends your payment proposals to your creditors.

 

Stage 3 – Reviews and Other Changes

 

Your provider will conduct periodic reviews, most likely on an annual basis.

 

You may be asked to provide bank statements and payslips to verify your updated income and expenditure.

 

Your trust deed payment may increase or decrease depending upon changes to your financial situation.

 

Don’t wait for your annual review if something changes. Contact your trustee if your income or household bills change significantly, or if you experience a financial emergency. Update them promptly if you receive (or become entitled to) money or property.

 

Stage 4 - Closure and Your Discharge

 

Your discharge works in two stages:

 

1. You get discharged and are no longer subject to the rules and restrictions.  Your discharge is recorded on the Register of Insolvencies and you can take steps to improve your credit rating.

 

2. Your trustee discharges themselves when they have finished their work on your case. This could be a long time after your own discharge, but any delay shouldn't affect you negatively.

 

Paperwork Requirements

 

Different firms have different requirements, but you’re likely to be asked for recent bank statements and payslips.

 

You may also be asked for household bills and/or benefit award letters.

 

If you’re self-employed you may need to prepare up-to-date accounts and provide recent tax return information.

 

For vehicles on hire purchase or lease agreements, prepare a copy of the finance agreement.

 

Homeowners should contact their mortgage lender for a “redemption statement”.

 

Your trustee needs to formally identify you. Prepare photo ID (like a passport or picture driver’s licence) and address ID (like a recent utility bill or bank statement).

 

Keep any creditor letters you receive as the account numbers and balances may be needed. This also helps to keep a track of debts that are transferred to debt collection agencies.

 

Payments to your Creditors

 

Your creditors will receive "dividends" from your protected trust deed (paid to them by your trustee). Interim dividends get paid during the plan and final dividends are paid at the end.

 

You should not pay your creditors directly.

 

Alternatives to a Trust Deed in Scotland

 

There are several ways to deal with personal debts in Scotland. Scottish trust deeds aren’t available to everyone (and aren’t the best option for everyone).

 

A Debt Payment Programme under the Debt Arrangement Scheme is one option. It could provide you with extra time to fully repay your debts while your monthly payment is reduced to an affordable amount. Interest stops and you have legal protection from creditors. This option also offers some flexibility, like emergency payment breaks for example.

 

A Debt Management Plan could help you to fully repay your debts. It’s not guaranteed that interest will stop and no formal legal protection is granted. Your monthly payment is reduced to an affordable amount. This is a particularly flexible option.

 

Bankruptcy is used to deal with more serious debt problems. It operates in a similar way to a protected trust deed, but it might not be suitable for many homeowners. You can become bankrupt even if you cannot afford a monthly payment (unlike the other debt solutions).

 

Where to get Advice?

 

It’s important to get expert debt advice. A Scottish trust deed might be right for you, but other debt solutions should also be carefully considered.

 

Providing debt advice is a regulated activity, so debt advisers must be authorised by the Financial Conduct Authority. Trust-Deed.co.uk is FCA authorised and regulated to give debt advice, as are many local advice centres like Citizens Advice.

 

Why is this so important? There are many unregulated "introducers" that might seem like debt advisers, but aren’t. They earn by selling your information to certain trustee firms, but cannot legally advise you about other useful debt management solutions. This leaves you at risk of mis-selling.

 

Some trustee firms aren't FCA authorised, meaning that they also cannot advise you about other debt management solutions. For reliable expert debt advice, always choose an FCA regulated debt adviser.

 

Personal insolvency processes in Scotland are overseen by the Accountant in Bankruptcy. They provide useful information on their website (but aren’t a direct debt advice provider).

 

Choosing your Trust Deed Provider

 

A Scottish trust deed isn’t a simple "product" so what you get depends upon which firm you choose. Some firms have very high case failure rates, which leave people facing their creditors directly again.

 

Some firms have a reputation for providing poor service, which is a worry if they’re supervising your personal finances for at least four years.

 

Our partner trustee firms have carefully helped and supported Trust-Deed.co.uk visitors for years. Read more about these firms in the profile pages for Kevin Mapstone and Paul McDougall.

 

Contact Us for Advice and Help

 

You can contact us for Scottish trust deed advice; our friendly expert advisers are here to assist you. Any contact with us is confidential and you’ll be talking to a fully qualified debt adviser.

 

You can also ask questions in our trust deed forum where experts from a panel of insolvency firms are available to answer your questions.

 

 

Author: Andrew Graveson

 

Qualified Debt Adviser & Trust-Deed.co.uk Founder

 

Page last updated: 27/08/2020

 

 

 

(c) Bright Oak Limited. Company Number: 06774006. Data Protection Registration: Z1657982.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.

 

 

 

(c) Bright Oak Limited. Company Number: 06774006. Data Protection Registration: Z1657982.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.