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.
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.