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Those concerned with debt are well advised to take the time to learn as much as possible about the options available to them. In this section you will be able to find descrptions written by subject experts of the various solutions. As well as describing how they work you will be able to learn about the strengths and possible drawbacks of each option. Which should you choose? That depends on your circumstances and priorities. We trust that this section of Debt Divas will give you the information that you need to make an informed choice.

Trust Deed

This is a voluntary agreement between a debtor and his/her creditors to repay part (and sometimes all) of what they owe. A trust deed transfers the debtor’s rights to certain assets that they own to a trustee who will look to utilise their value to pay creditors a dividend towards what is owed to them. A trust deed will normally include a contribution from income for a specified period; this is usually a minimum of 48 months but can vary.

The trustee must be a Licensed Insolvency Practitioner. You can find a list of Scottish insolvency practitioners and get online advice about trust deeds at Trust-Deed.co.uk

An ordinary trust deed is not binding on creditors unless they agree to its terms. A voluntary trust deed is listed on the Accountant in Bankruptcy’s “register of insolvencies” and providing no objections are received within 5 weeks of the listing it becomes protected.

Read more about the specifics of how trust deeds work at: http://www.trust-deed.co.uk/what_is_a_trust_deed.php

Protected Trust Deed

A protected trust deed is binding on all creditors. Providing the debtor complies with the terms of their protected trust deed (“PTD”), the creditors can take no further action to pursue the debt or to make the debtor bankrupt.

Advantages

  • Your Trustee deals with your creditors on your behalf.

  • You make just one payment per month from your disposable (surplus) income.

  • When your Trust Deed becomes protected your creditors cannot take further action against you, arrest your earnings or continue to charge interest.

  • It is possible for individuals to hold certain public offices, remain as directors and for companies to continue to trade.

  • Trust Deeds normally last four years and at the end of that term the remaining debt is effectively written off (subject to a small number of exceptions).

  • Trust Deeds are usually more flexible and cost less to administer than sequestration (bankruptcy).

Disadvantages

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 re-mortgage 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. You will remain liable for other debts incurred. If your trust deed fails you may become bankrupt.

Creditors are not required to accept the terms of any particular trust deed proposal. Details of trust deeds are kept on a public register. When you cease paying your debts directly you are likely to fall into arrears (or further into arrears) on your accounts.

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.

Alternatives

  • Debt Management Plan

  • Debt Arrangement Scheme

  • Bankruptcy

For further details about protected trust deed fees and the work that is conducted Click Here

Warning: If your Trust Deed fails you will remain liable for the balance of your debt and any insolvency practitioner fees and costs incurred.

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