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What is a Trust Deed in Scotland?

What Is A Protected Trust Deed?

Is This A Government-Approved Debt Solution?

 

Trust deeds exist under government insolvency legislation.

 

They aren't “government-approved”. They're just one of several debt solutions that might suit your needs.

Where to Get Advice?

You need good debt advice. A trust deed might be right for you, but other choices exist as well. You might find a cheaper or faster way to clear your debt.

 

Providing debt advice is a regulated activity. You can only advise about debt solutions if you're authorised by the FCA. This website is FCA regulated to give debt advice, for example. So are local advice-centres like Citizens Advice.

 

Why is this so important? The trust deed market contains many non-regulated "introducers". They might seem like debt advisers, but they aren't. They make money by passing your details to certain trustee firms. They cannot advise you about some other debt options.

 

Some actual trust deed providers (trustee firms) aren't FCA authorised. They also cannot advise you about certain debt solutions. They can only advise you about trust deeds and bankruptcy.

 

For reliable debt advice, be sure to choose an FCA regulated debt adviser.

 

Choosing a Trust Deed Provider

Please don't view a trust deed as being a simple "product". What you get depends upon where you choose to go. Your choice of firm is very important.

 

Some firms have high case failure rates. Each case failure means a person having to start again to tackle their debts. They may lose the money they've paid in (in trustee fees).

 

Some firms have reputations for giving poor service. You'll be reporting to them for at least four years. You'll rely on them to decide upon future changes to your payment amount. You'll need their help and support if something goes wrong.

 

We can guide you to firms that have supported our visitors in the past. A recommendation may help you to avoid the worst providers.

 

Debts That Are Included

 

You must include all of your unsecured debts. These might be credit cards, overdrafts, or bank loans. They could be payday loans or catalogue debts.

 

You must also include guarantor loans, council tax, and utility arrears.

 

Excluded are most secured debts. This includes mortgages and hire purchase agreements. Student loans aren't included. Nor are certain types of social security over-payments or Court fines.

 

Do You Qualify? The Criteria

 

You need to be resident in Scotland.

 

The minimum legal level of qualifying debt is £5,000. Please note many trust deed providers will require a debt total to be more than £5,000. For couples wanting trust deeds, you each must have a minimum of £5,000 of debt.

 

You must be able to afford to make payment into a trust deed.  Surplus money is your “disposable income”. Disposable income is your total income, minus your total bills and expenses.

 

If you have no surplus income, it’s unlikely a trust deed will work for you. Sometimes an asset sale can fund a trust deed instead of surplus income.

 

How Long Does A Trust Deed Last?

 

Trust deeds last for a minimum of four years (48 months). However, firms may offer you a trust deed that runs for longer than four years.

 

A longer plan may help to win creditor support. Creditor support is vital to achieve the protection of your trust deed. Extra payments mean that your creditors will get back more money.

 

Extra payments may be used to deal with your assets. This could include equity in your home. It could include a car worth in excess of £3,000. Extra payments might enable you to keep these assets. The trustee creates a written plan for your assets at the start of your trust deed.

 

A longer plan might help your trustee to increase their fee income. Speak to another firm if you’re quoted a term longer than four years. You may be able to avoid it an extension. You might save time and money by going to a different trustee.

 

Trust deeds can get extended after they begin. This might happen if you miss some payments, or if you have to reduce your payments. It might happen if you don't disclose a pay increase or “windfall” lump sum to your trustee.

 

These plans can adapt. For example, you might have to miss a payment to pay a large car repair bill. Adding a payment at the end of the term could fix this.

 

You won't get discharged straight after your last payment. Your trustee will take some time to complete their work on your discharge. Some firms handle this work faster than others.

 

Your trustee has a separate discharge. This could happen many months later. You stay on the Register of Insolvencies for one year following your trustee’s discharge.

 

Advantages & Disadvantages of Trust Deeds

 

Help Dealing with Your Creditors

 

Your trustee will deal with your creditors for you. This can reduce your stress and free-up your time.

 

Legal Protection from Your Creditors

 

With protection in place, creditors cannot take legal action against you.

 

Make a Single Monthly Payment

 

Making a single monthly (or weekly) payment makes money easier to manage.

 

Debt Write-Off

 

If you complete your trust deed, any unpaid included debt gets written-off.

 

Frozen Interest on Debts

 

Interest and charges get frozen by a trust deed.

 

The exception is if you receive a windfall before discharge. Interest will only get added to your debts if you become able to afford to pay it.

 

Damage to Your Credit Rating

 

Your credit rating will get damaged by entering a trust deed. This will restrict your ability to obtain credit in the future. It may affect the terms upon which future credit gets offered to you.

 

The trust deed will remain on your credit file for six years (from its start date).

 

Expenditure Restrictions

 

Your expenditure gets restricted until your discharge. You're required to pay what you can afford towards your debts. Your trustee decides the amount that you can pay.

 

Equity in Your Home

 

A check gets made on any equity in your home. This happens before your trust deed begins. If equity exists, additional payment may become due.

 

An equity release might involve a mortgage or secured loan. It might involve a third party payment. It could instead be an extension of your trust deed payments, beyond the usual four year term.

 

Cars and Other Vehicles

 

If you need your vehicle, you’ll usually be able to keep it. If it’s worth £3,000 plus, you may need to arrange some extra payment. This could be an extension of your payments.

 

Coming Into Money (Windfalls)

 

If you receive a windfall during a trust deed, you’ll have to pay it over. This applies to money and property you receive.

 

Examples might include inheritance or PPI claims. They might also include redundancy payments, or pension lump sums.

 

Falling Into Arrears

 

If you stop paying your creditors yourself, you will fall into arrears.  If you are already in arrears, you will fall further into arrears.

 

Charges and interest could get added until your trust deed begins.

 

Details Held on a Public Register

 

Your personal details get added to a public register. This is the Register of Insolvencies. It is available to search online.

 

Fees are Payable

 

If you enter a trust deed, fees get charged by your trustee. These fees get collected from the payments that you make each month.

 

No free option exists. All providers charge fees.

 

A fee is charged to set-up your trust deed. This may be a fixed sum.

 

The provider also charges to operate your plan over the years. This may be a percentage of your payments.

 

If your trust deed fails, fees will get taken from your payments to date. Your creditors may receive nothing and you'll remain liable for the balances owed.

 

A Change in Your Situation

 

If you cannot make payments, your trust deed may fail. If it fails you will need to deal with your debts in a new way.

 

If you don't make the agreed payment, your trustee could decide to make you bankrupt. They could instead try to obtain payment straight from your employer.

 

Small changes to your situation might result in a change to your payment. It can increase or decrease based upon what you can afford.

 

Your Continued Employment

 

Most people can enter into a trust deed in Scotland without risking their job.

 

Some professionals may have a problem. This applies to solicitors or accountants, for example. Particular risks may apply to those working in the financial services sector.

 

Some workers have advance employer disclosure requirements. This is typically a risk-control measure. It may apply to the police, prison officers, or the armed services.

 

Everyone should check their contract of employment prior to signing a trust deed. If you have access to a trade union, speak with them. Do you have a trusted contact in your HR department to talk with?  Do you have a trusted colleague that might be able to do this for you? Employers with trust deed contract clauses may not always enforce them.

 

Repeated Use of Trust Deeds

 

It is possible to enter a second protected trust deed.

 

If you're discharged from your last one and have new debts, you can try to start another.

 

Creditor Contact

 

Creditor contact may continue for some time. Creditors can be slow to update their systems when you start a trust deed.

 

Debt collection contact may be annoying, but it needn't be a worry.  Letters can be passed to the trust deed provider. Advise any callers to contact your trustee.

 

You're paying your trustee to deal with your creditors. Make the trustee aware of any concerns.

 

How Does The Process Work?

 

A trust deed operates in four main stages:

 

Stage 1 - Fact-Finding and Advice

 

You speak with a debt adviser. They ask you questions so that they understand your situation. Your money and your personal situation are both important. The adviser asks about your income, bills, debts, and any assets you own.

 

The adviser will tell you which debt solutions you can use. They can explain the pros and cons of each. You can ask questions so you understand your choices.

 

Stage 2 – Setting-Up the Trust Deed

 

Your adviser collects documents from you. They may require payslips and benefit award letters, for example. A request for bank statements is likely. Bank statements help to check your bills and other expenses.

 

An “income and expenditure” record gets agreed with you. This shows your creditors the amount that you can pay. This is the method used to work out your payment.

 

If you own assets, a written plan gets created. It explains what (if anything) will happen to them. This is most common for homeowners.

 

The provider creates the actual trust deed document. This isn't a standard document. It’s unique to you. Carefully read it before you sign it.

 

Your details are added to the Register of Insolvencies. Your trustee will write to your creditors. Your creditors have five weeks to raise any objections (or to agree to your proposals).

 

Stage 3 – Reviews and Changes

 

Your provider will conduct periodic reviews with you. These may be annual. You may be asked to provide new evidence of income and bills. This could include payslips and bank statements.

 

If your spare money increases, your payment could increase. This could happen if you receive a pay raise, for example. If your spare money declines, your payment could reduce. This could happen if your income reduced, or if your bills increased.

 

You don’t need to wait for your review if something changes. Contact your trustee if your pay increases or reduces. Contact them if you have a financial emergency. Contact them if you come into money.

 

Stage 4 - Closure and Discharge

 

Discharge from Scottish trust deeds works in two stages.

 

The most important stage is your discharge. You’ll no longer be subject to the rules and restrictions.  Your discharge gets recorded on the Register of Insolvencies. You can take steps to improve your future credit rating.

 

Your trustee must discharge themselves from your trust deed. This happens when they have finished their work on your case. This could be a long time after your own discharge, but that shouldn't affect you negatively.

 

Payments to Your Creditors

 

You shouldn't make payment directly to your creditors.

 

Your creditors will receive a "dividend". This is a part of the money owed to them. It's paid to them by your trustee.

 

Interim dividends are payments made during your trust deed. The payment of final dividends occurs at the end of the arrangement.

 

What Paperwork Will You Need?

 

Your trust deed provider will need certain documents from you. Don’t panic or delay if all of this paperwork isn’t available. Collect what you can in order to get the process underway.

 

Three months of bank statements will be useful. Invoices for bills may be useful, though this data may be present on your bank statements.

 

Providing payslips will verify your income. So will providing award letters for benefits, tax credits, or child support. Your bank statements may help to cover any gaps.

 

For the self-employed, a recent tax return is valuable. An accountant's letter confirming recent income may help. Your projection of future earnings will also be useful.

 

For cars on HP or lease, the adviser may want to see the finance agreement.

 

Try to keep all creditor letters. The account numbers and balances are important. Debts can change hands, so recent letters help. Dig out any old letters or credit agreements that you have.

 

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

 

Your trustee will be required to ID you. Photo ID like a passport or picture drivers licence will help. They may also request a recent utility bill, or bank statement, with your name and address on it.

 

If you’d like personal advice about starting a trust deed, please contact us.

 

 

Page last updated: 25/02/2019

 

 

(c) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.

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) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.

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.