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I’VE been struggling with debt and I’m thinking about applying to enter a trust deed. Can you offer any advice?
I’M sorry to hear you’ve been struggling with debt, but you’re making the best possible decision by investigating the options available to you.
Trust deeds are just one insolvency/debt management option and it’s important you understand your situation in full and speak with someone who can work with you to discuss options available.
It’s a requirement of a trust deed that you have received approved debt advice prior to entering the arrangement.
A protected trust deed is a form of insolvency where you make a legally binding agreement with your creditors to pay off your debts within a set period of time, usually four years.
This involves transferring your assets and property to a trustee who will manage your financial affairs with the aim of paying your creditors as much as possible of the debt(s) owed to them.
A trust deed can become “protected” providing that most creditors agree to it, and are satisfied with the terms of the agreement.
This results in the trust deed becoming binding on all creditors and they are then prevented from pursuing any form of action to recover the money owed to them.
Furthermore, if a trust deed becomes protected, and you are maintaining your payments without any problems, your creditors cannot legally make you bankrupt or take you through sequestration procedures (the name for bankruptcy in Scotland).
If the trust deed is not “protected”, it will not be binding upon all of your creditors, which means they would be able to pursue steps to recover the money you owe them.
When you enter a trust deed, the debt is “frozen” at the start of the arrangement, meaning that with your continued cooperation no further interest or charges will be applied.
Additionally, with a trust deed, correspondence with creditors will be limited and once it is set up creditors will not be able to chase you for payment.
On the other side, trust deeds come with several responsibilities and restrictions.
You may be required to sell assets, including vehicles over a certain valuation, to pay back the debt(s) you owe.
Your employment may be affected as some jobs – including financial services, legal professions, and law enforcement – have restrictions on employing people with adverse financial histories.
There are certain criteria that must be met to be eligible to enter a protected trust deed.
You must have at least £5000 of debt, which must be indebted to at least two creditors.
You must also be a resident of Scotland or have resided here for at least six months prior to applying, and not have been made bankrupt in the last five years.
Formal debt solutions, such as trust deeds are one route you can go down if you are struggling with debt but aren’t always suitable for everyone. There may be other, more suitable options available to you.
Advice Direct Scotland runs moneyadvice.scot and provide free information and support on a range of debt-related issues. Its specialist debt advisers can work with you to assess your current situation, look at your income and outgoings, and consider what to do next.