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What is a Trust Deed?
It is a voluntary, but legally binding agreement, between you and your creditors (the people you owe money to). Effectively, you agree to pay your debts at an affordable rate, whilst protecting your home and car.
Once the Trust Deed is completed, any remaining, qualifying, unsecured debts will legally be written off. Your creditors can no longer pursue you for the remaining amount leaving you debt free.
Trust Deed’s were introduced by the Scottish Government for people struggling to pay off their debts. If you live in England, Wales or Northern Ireland, you can set up an Individual Involuntary Agreement (IVA).
How it works
Trust Deeds can only be arranged and administered by a licensed Insolvency Practitioner (IP) and they’ll take on the role of ‘Trustee’.
So, if you instruct us as your insolvency practitioner, it is our job to set up the Trust Deed and deal with your creditors on your behalf. This means you can carry on with your life without worrying about debt – because your creditors are not legally allowed to contact you directly for further payments.
We will create a debt repayment plan, which is a monthly rate. This allows you to make payments towards your debts over a fixed timeframe (typically over 4 years).
If you have over £5,000 in unsecured debts you could consider setting up a Trust Deed. There are a number of things this can help with including: personal loans, credit and store cards, payday loans, council tax arrears, catalogue debts, credit union debts and bank overdrafts.
It is sometimes possible to include a mortgage shortfall from a home that has been repossessed; car finance where the car has been handed back already; or unpaid utility bills from previous addresses; and mobile phone bills from a contract you no longer want to keep.
There are also some HMRC debts that can be covered under certain conditions, but student loans and court fines cannot be included under a Trust Deed.
We will create a contract between you, the people you owe money to and us (your insolvency practitioner). This is governed by insolvency legislation and would take account of anything owned by you at the date of signing.
To do this, we will complete a questionnaire together. This gives us an understanding of what you owe, to whom and what assets you may own. In most cases, the biggest asset you own is your family home. Any equity held in your home needs to be brought into the Trust Deed for the benefit of your creditors. There are various ways this can be achieved; such as a contribution from your monthly earnings for 48 months (this is set on in the guideline of The Common Financial Tool etc (Scotland) Regulations 2014.)
All unsecured debts owed by you are caught by the Trust Deed. At the end of the Trust Deed period, any money still owed to your creditors is written off.
Typically, Trust Deeds in Scotland last 4 years. You will make one fixed regular affordable monthly payment to your Trustee, who distributes the money to your creditors (minus their fee for arranging and managing the Trust Deed.)
However, in some circumstances, it may take you longer to complete the Trust Deed. E.g the duration of the Trust Deed term might be extended for a period of 12 months, meaning the Trust Deed duration is now 5 years. This will be discussed with you in more detail when you speak to our experienced insolvency practitioners.
In Scotland, Trust Deeds are a valuable Government created debt relief tool that offers a way to manage your unaffordable debt.
You can reduce your monthly debt payments down to an affordable level and become debt free in as little as 48 months. You must have a minimum of £5,000 of unsecured debt to qualify, but you can apply for a Trust Deed if you have over £50,000 of unsecured debt also.
If you qualify, a Trust Deed is right for you depending on your personal circumstances. Ultimately, you should be given qualified debt advice to explain to you the advantages of Trust Deeds and the disadvantages of Trust Deeds. There might be alternative debt solutions in Scotland that are more suitable for your circumstances.
The minimum debt level required to enter into a Trust Deed is £5,000. This total debt amount is based on your unsecured debts only.
Examples of unsecured debts include: personal loans, credit and store cards, payday loans, council tax arrears, catalogue debts, credit union debts and bank overdrafts.
It might be possible to include a mortgage shortfall from a previous address which has been repossessed or car finance where the car has already been handed back. Some HMRC debts can be included under certain conditions. Or if you have a mobile phone bill, for a contract you no longer want to keep. You can include utility bills from previous addresses.
Some debts cannot be included in Trust Deeds for example, student loans and court fines.
IVAs, also known as Individual Voluntary Arrangements are the English, Welsh and Northern Irish equivalent of Trust Deeds in Scotland but an IVA is not exactly the same as a Trust Deed.
The length of the process is the main difference, with a Trust Deed typically lasting 4 years and an IVA lasting 5 years. Sometimes you may read about a Scottish IVA, but this is a term generally used to describe a Trust Deed.
Another difference is the amount of debt that can be included with a Trust Deed, you would typically have £5,000 of unsecured debt, and with an IVA, you can apply for an IVA with £6,000 of unsecured debt.
While an IVA may not technically be the same as a Trust Deed, there are other similarities and differences between IVAs and Trust Deeds. There are other solutions in Scotland that vary from the rest of the UK solutions including:
Sequestration (Scotland) – Bankruptcy (England, Wales & Northern Ireland)
Almost all unsecured debts can be included in Trust Deeds such as:
The main debts that can’t be included are student loans, court fines, and secured loans
If you’re still feeling confused, feel free to drop us an email or give us a call.
Need to speak to one of our financial experts or refer a client?
Claire Middlebrook, Scott Bastick and Katie McLachlan are authorised to act as insolvency practitioners in the UK by the Institute of Chartered Accountants of Scotland
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