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Personal Insolvency Options in Scotland: Trust Deed



Written by: Jonathan Munnery

How can a Scottish Trust Deed help individuals in debt?

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Aberdeen Office 01224 418 700 - Office Details: Aberdeen Insolvency Practitioners
Dundee Office 01382 684 997 - Office Details: Dundee Insolvency Practitioners
Edinburgh Office 0131 203 3416 - Office Details: Edinburgh Insolvency Practitioners
Glasgow Office 0141 278 6165 - Office Details: Glasgow Insolvency Practitioners
Inverness Office 01463 642 850 - Office Details: Inverness Insolvency Practitioners

What is a Trust Deed?

A Trust Deed is a specific form of insolvency open as an option to anyone in Scotland with significant levels of personal unsecured debt that they cannot afford to pay back. As a legally recognised alternative to bankruptcy, Trust Deeds are entered by thousands of people in Scotland every year. Within the group we have our own personal insolvency website for Scotland that can help in solutions such as trust deeds where you can read in more detail about Scottish personal insolvency solutions and try the free debt report questionnaire.

The essential purpose behind Trust Deeds is that they should enable creditors to recover some of the money they are owed by individual borrowers in Scotland who have become insolvent. As such, a Trust Deed represents and legally establishes a compromise between a debtor and their creditors.

The consequences of which are that a debtor escapes the stress of trying to fend off their creditors indefinitely and not all of their debts have to be repaid. Meanwhile, from the perspective of the creditor, guarantees are provided in relation to the repayment of at least some of the monies they are owed.

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Protected Trust Deeds

A protected Trust Deed offers legal protection to debtors who might otherwise be concerned that their creditors will insist that they enter sequestration, which can have more damaging and longer lasting consequences for an individual. 

How do Trust Deeds work?

In order for a Trust Deed to be formally established, an insolvency practitioner needs to be appointed to manage and facilitate negotiations around the terms of a repayment plan. This person will typically be referred to as a Trustee and they take responsibility for ensuring a repayment plan can be created and agreed upon by all relevant stakeholders.

Once the terms of a Trust Deed are agreed then a schedule is set in place during which a debtor will be required to make payments as a single sum. This money will then be used to pay back creditors over a period of time. If this plan is appropriately adhered to then creditors receive a portion of the money they’re owed and debtors are ultimately able to move on from a position of insolvency.

How are Trust Deeds used?

From the point of view of individuals with unsecured debts that they have no realistic hope of repaying, a Trust Deed provides legal protection from creditors. This protection generally brings with it a good deal of relief and reassurance on the part of debtors, who in many cases have been wrestling with their finances and struggling to keep pace with their debts for many months.

For their part, creditors might be unhappy that their debts are not likely to be paid in full under the terms of a Trust Deed agreement but they can be satisfied that a portion of the money they’re owed will definitely be returned to them.

In short, Trust Deeds are used to legally enshrine assurances that commitments on both sides of the unsecured debt equation will be upheld over a specified period of time.

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The agreement

As a form of insolvency, a Trust Deed is a way of making clear that a particular party, in this case an individual, has no realistic prospect of paying back the debts that they owe. The idea behind this legally-supported process is that debtors can agree on a repayment plan with their creditors but applying to enter a Trust Deed does not necessarily mean that such an agreement will be reached.

For a Trust Deed agreement to be reached and for the repayment plan to be properly established, it has to get the approval of at least 50% of the creditors involved or as many as can account for 67% of the total unsecured debts owed. In other words, if a majority of your creditors or any parties that are owed more than 33% of your total debts object to the terms of your deed as they are proposed then it will not get the go-ahead.

How cooperative or otherwise your creditors might be as a Trust Deed plan is put together can depend on a variety of different issues but a licensed insolvency practitioner can help to negotiate terms under these circumstances.

When is a Trust Deed the right option?

Entering a Trust Deed agreement as an insolvency solution proves to be the right option for thousands of indebted individuals in Scotland every year. So if you have unsecured debts worth in excess of £5,000 but you’re effectively unable to pay them off then a Trust Deed can represent a realistic way of resolving the situation and moving towards a more sustainable position.

Trust Deeds are generally used by Scottish consumers to find a way out of a situation in which their debts have spiralled out of control. Typically that means establishing plans that see credit card debts and other unsecured loan amounts consolidated.

Trust deeds shouldn’t be viewed as a quick fix for serious debt problems but they do ultimately lead to an individual paying back only a portion of the amounts they owe and doing so over an extended period of time. So if you are committed to overcoming your unsecured debts and you are looking for legal protection from creditors as you aim to do so then entering a Trust Deed could be the right choice for you. 

Trust Deeds and your credit rating

One of the most significant consequences of entering a Trust Deed as an individual in Scotland is that your personal credit rating is likely to be negatively impacted. This may mean that you will struggle to access any credit for a number of years after the deed has been entered into. However, given that a Trust Deed is a form insolvency, it is very likely that your credit rating would be negatively impacted under any foreseeable circumstance.

In fact, taking the proactive step of entering a Trust Deed agreement is ultimately more likely to be viewed in a positive light by creditors than ignoring the issues and struggling indefinitely with large amounts of unsecured debts. Also, a Trust Deed usually lasts for a period of up to four years, during which time the individuals involved are advised not to take on any more unsecured debts of any kind.

So credit ratings generally become less important considerations for anyone entering a Trust Deed as a means of taking back control of their finances but there’s no reason they cannot be salvaged and steadily improved once the deed has run its course.

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Trust Deeds and your personal assets

As a Trust Deed arrangement is being drawn up, the insolvency practitioner appointed as the Trustee is responsible for assessing the value of the debtor’s assets. It could be that the debtor will be obliged to sell or re-mortgage a property that they own in order to satisfy a portion of their outstanding debts upfront.

However, it is far from a certainty that entering a Trust Deed will necessitate selling your home or every other valuable asset you own. Ensuring that a repayment plan is affordable and can be managed by the debtor is fundamental to the way Trust Deeds are designed to work. So if, for example, you need your car to travel to and from your workplace then the view may well be taken that your retaining ownership of that vehicle is in the interests of everyone involved. 

Trust Deeds and living expenses 

A successful Trust Deed is one that gives debtors a chance to climb out of a serious financial hole and emerge having completely satisfied their creditors. On the other hand, from the creditors’ perspective, a successful Trust Deed is one that remains in place for long enough so they can recover most of the monies they are owed.
Therefore, it is in the interests of all stakeholders to see an arrangement reached that gives debtors a realistic chance of fulfilling their obligations and retaining some measure of financial flexibility in the process. With this in mind, the terms of a Trust Deed will be based in part upon affordability and on giving the debtor a chance to cover ordinary living expenses without excessive difficulty while the deed is in place.

A Common Financial Tool is used to calculate just how much the debtor involved in a Trust Deed needs to live on while the deed is in place. Creditors can be part of negotiations on this issue with the debtor given the opportunity to detail his or her everyday overheads and typical outgoings.

Once the terms of a Trust Deed are agreed upon and put in place, it is the responsibility of the debtor to make and communicate to the Trustee any issues that might leave them unable to make repayments as intended. Where there are valid reasons for doing so, a Trustee can suspend the terms of the deed for a period of up to six months. 

Disadvantages of a Trust Deed

Potentially negative consequences of entering a Trust Deed can include your assets having to be sold to satisfy your creditors as the terms of a repayment agreement are thrashed out. Under certain circumstances, this can mean having to release equity in your home or having to sell other cherished assets of value. 

Entering a Trust Deed also means jeopardising your credit rating and potentially making it very difficult for you to access any form of unsecured debt facilities in future.

Another potential deterrent to pursuing the Trust Deed option is that the fact of individuals doing so becomes a matter of public record in Scotland through the Register of Insolvencies, as all insolvencies do.

Advantages of a Trust Deed

A Trust Deed offers a number of incentives to action on the part of individuals dealing with high levels of unsecured debts. Importantly, they provide legal protection to debtors who might otherwise spend a lot of their time fending off creditors demanding money they cannot pay.

A Trust Deed repayment plan is also designed to be affordable and manageable, having been drawn up by an impartial third party. So a debtor can get to grips with their financial situation instead of seeing it get gradually worse.

The specified time period over which a Trust Deed is designed to run gives a debtor a clear goal to aim for, which, once reached, will mean their debt problems are essentially resolved.

A Trust Deed is also very appealing to heavily indebted individuals in Scotland because it doesn’t require a debtor to pay back the entirety of the money they owe.

Trust Deeds and employment

There is no legal obligation for anyone entering a Trust Deed to inform their employer about the matter unless it is specifically stated in your employment contract that you need to do so.

Some organisations and industries will take a less favourable view than others about one of their employees entering a Trust Deed but it certainly does not follow that informing them will jeopardise your professional position.

If you decided not to inform your employer that you’ve entered a Trust Deed then there is a chance that they will find out through the Register of Insolvencies but this is generally only a remote possibility in most circumstances. 

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Trust Deeds and self-employment

The option of entering a Trust Deed as a means of trying to resolve unsecured debt-related issues is open to self-employed men and women across Scotland. An agreement between creditors and the debtor might be more difficult to reach when a person is self-employed but the principles underlying the process are precisely as they are with anyone in any other form of employment.

Unsecured debts can very easily mount up to an extent which becomes unsustainable and eventually unbearable from the perspective of the individual involved. Under the circumstances there are a variety of options available and it is important to speak to an expert and to get clear guidance on which route forward might be best for you.

In addition to Trust Deeds, indebted individuals in Scotland can choose to enter sequestration, a Debt Arrangement Scheme or a Debt Management Plan in order to draw a line under their unsecured debts. Any such action should be considered carefully beforehand but can offer a valuable chance to move on from onerous and serious unsecured debt problems.

If you would like to speak to an insolvency specialist in confidence or arrange a free consultation, contact any of the Real Business Rescue offices in Scotland. We have bases in Aberdeen, Dundee, EdinburghGlasgow, Inverness and our experts will be happy to outline the details of your personal debt management options, whatever the scale of your debts or the nature of your concerns.

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