Scottish Trust Deed

For those faced with growing debts worth over £5000 then a protected Trust Deed can certainly provide an ideal solution to get back on track whilst also getting finances back under control as soon as possible.

What is a Scottish Trust Deed?

A Scottish Trust Deed is a formal and legally binding agreement for residents of Scotland (only) which is entered into voluntarily between an individual and their creditors (similar, in essence, to an Individual Voluntary Arrangement).

Once a Trust Deed has been entered into, all outstanding debts are then consolidated and the debtor pays just one, affordable monthly repayment via a licensed Insolvency Practitioner who ultimately adopts the role of Trustee.  The amount to be repaid is based on a full review of all outstanding debts alongside any disposable income which might be available to the debtor once ‘priority debts’ have been taken into account but of course, need to be affordable since these repayments have to be maintained going forward.  The main concept, of course, is to get the debtor back out of debt whilst also making at least some repayment towards any outstanding liabilities.

How long does the a Trust Deed last for?

A Scottish Trust Deed will usually last for a period of four years, although a longer period can certainly be considered if necessary.

What are the key benefits of going into a Trust Deed?

As with an IVA, there are numerous benefits of going into a Trust Deed:

  • A Trust Deed is legally binding and once entered into, the terms of it can’t be changed by the creditors. This means that the monthly repayments can’t be increased; nor can the creditors claim any additional charges such as interest or late payment fees.
  • Once repayments have been made over the 48-month period all debt is then ‘written off’ and the debtor is left completely debt free. This also means, of course, that they can then start to rebuild a much more positive financial footprint and ultimately increase their credit ratings.
  • Throughout the duration of the Deed, creditors are unable to make contact with the debtor i.e. make any phone calls chasing payment, to send correspondence or instruct bailiffs. This is a huge benefit for most debtors since the pressure of continued contact from creditors can quickly lead to adverse health effects such as stress and depression.
  • All the costs of entering into a Trust Deed can easily be added to the outstanding amount and recovered as part of the repayment plan. This means there are no fees to find up front nor any pressure of having to pay them at the end of the arrangement.
  • The entire management of the arrangement is dealt with by the debtor’s chosen advisor so, once it’s entered into, there’s nothing further the debtor needs to worry about. In fact, on the contrary, they can simply look forward to a completely debt-free future just 48 months down the line!

Are there any disadvantages of entering into a Scottish Trust Deed?

There certainly can be some disadvantages of entering into a Scottish Trust Deed so these should always be considered very carefully before committing to one:

  • If the debtor is a homeowner and there’s an equity in the property (however small) then it’s likely this will have to be released in order to pay creditors. Whilst an actual sale of the property can often be avoided (for example, through a re-mortgage or repayments being made by another third party) this is something any homeowner should consider very carefully and take professional advice on.
  • Some debtors may be prevented from entering into a Scottish Trust Deed due to their profession. For example, some members of the armed forces or police force are often exempt from doing so.
  • It’s unlikely that a debtor will be able to take out any further credit whilst locked into the Trust Deed and, as with any other type of debt arrangement, a Trust Deed is then likely to affect future credit ratings. That said, on the plus side, it does demonstrate to potential lenders that the debtor has taken control of their finances and done something positive about it.

How does a Trust Deed become ‘protected’?

Once a debtor has entered into a Trust Deed their nominated advisor will place a formal notice in the Register of Insolvencies.  Creditors will then have a period of five weeks from the date of this publication to either accept or object to the proposal.

A Trust Deed will then become ‘protected’ provided that sufficient objections aren’t received i.e. are not a majority in number or are less than a third in value of the entire debt level.

Once the Trust Deed becomes protected it is formally recorded and creditors are then unable to take any further action to recover their debts.

What types of debt can go into a Protected Trust Deed?

There are numerous types of debt which can be incorporated into a Trust Deed i.e:

  • Credit cards
  • Unsecured loans/debts
  • Payday loans
  • Catalogue or other mail order debts
  • Store cards
  • Council tax arrears
  • Benefit overpayments
  • Overdrafts
  • Credit Union debt
  • HMRC debt
  • Previous mortgage debt
  • Car finance
  • Personal debts due to family or friends

And what types of debt are exempt?

Secured debts can’t go into a Protected Trust Deed and neither can:

  • Mortgage payments
  • Rent arrears
  • Log book arrears
  • HP arrears
  • Guarantor loans
  • Personal guarantors

How do I qualify for a Scottish Trust Deed?

In order to qualify for a Trust Deed then a debtor must meet certain criteria.  For example the debtor must:

  • Have a minimum debt level of £5,000.00 (although some practitioners require a minimum debt level of £8,000.00 so it’s important to check this)
  • Owe money to two or more individuals (or, in the alternative, have at least two lines of credit with one lender)
  • Be resident in Scotland
  • Be willing to invest at least £100.00 per month into the arrangement. Anything less than this is likely to be rejected.

Trust Deed Scotland: What It Is And How It Works

The Scottish Trust Deed is a form of debt help for residents of Scotland which allows the debtor to make reduced, affordable monthly repayments for a set period (usually 48 months). After the period expires any remaining debt is legally written off. Throughout the period of the trust deed creditors, debt collectors and bailiffs are forbidden to contact the debtor and interest and charges are frozen.

 A Trust Deed can only be processed by a licensed Insolvency Practioner who will draft the Trust Deed agreement and put the proposal forward to the creditors of the Debtor. Once agreed it is valid for 4 years.

Residents of England, Wales and Northern Ireland cannot enter into a trust deed agreement. However, they can opt for the IVA or individual voluntary arrangement – a solution that is similar to the trust deed. To maximise the IVA, it is important to understand its benefits and risks, along with the fees that will be charged.

Who Qualifies As a Trustee?

To ensure that the agreement is proper and valid, the trustee is required to be a qualified professional insolvency practitioner or IP. Trustees and insolvency practitioners operate under regulation by the government. They are also required to hold membership with a governing body.

When is a Trust Deed Invalid?

A trust deed is only considered valid if the creditors agree to the terms. Unless creditors agree to what is included in the deed, it is not considered a protected agreement. In this case, the trust deed is not a binding document.

When is a Trust Deed Protected?

The trust deed document becomes protected when creditors agree to the terms of the document. At least one-half of the number of creditors have to accept the terms for the proposal to progress to the next step, or a number of creditors who represent 75% of the debtor’s total debt at the minimum should accept it to make it binding. In general, a creditor who does not respond to the offer is considered in agreement.

Once creditors have accepted the trust deed, they are no longer allowed to collect or take any action to attempt to collect from the debtor, including filing a case in court.

How Are Payments Made Through a Trust Deed?

The debtor pays the creditors through the trustee who manages the trust agreement. It is the trustee’s responsibility to distribute the payment to different creditors on the debtor’s behalf. See for more details by clicking here.

Are There Fees Charged For Trust Deeds?

There are fees charged by the IP since he/she manages the payments for the client. The fee includes administration and management costs, and is charged on top of the monthly payments. Note that some IPs charge fees upfront. The cost of managing the payments also vary depending on the IP or the IP company, so it is a good idea to compare rates to get the best deal.

What Happens to Me If I Sign a Trust Deed?

A trust deed may or may not be the right solution for your debts depending on your financial situation. It is always recommended to weigh the risks and benefits of the agreement. To determine if it is the right option, consider the following:

  • Trust deed agreements will be reflected on the debtor’s credit file and remain there for 6 years. During this period, it may be difficult for the debtor to apply for additional credit;
  • There is a risk that the debtor may have to declare bankruptcy if the deed fails;
  • The appearance of a trust deed on the credit file may affect the debtor’s job. If this is the case, it is a good idea to talk to the HR department;
  • The debtor’s personal information will appear on the ROI (Register of Insolvencies) and remain there for 5 years. The ROI is publicly available and will contain information regarding currently active trust deeds;
  • The debtor must maintain a strict budget during the four-year period when the deed is active;
  • The debtor must pay the IP that manages the deed;
  • The debtor may be required to put up valuable assets for sale.