Find Out If You Qualify For An Protected Trust Deed

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A trust deed gives you a way to get out of serious debt, and the chance to rebuild your financial life after the term of the trust deed has come to end.  It is a debt solution that is only available to Scottish residents and it lasts for only 48 months (4 years). However, the length of this time can be affected by many factors, such as whether or not you own a property. 

Many homeowners fear that their home might be sold when they enter a trust deed.  The truth is that this isn’t always the case as the outcome mostly depends on the amount of equity available in the property.  We have answered the frequently asked questions about a trust deed.

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What exactly is a Trust Deed?

A trust deed is a voluntary agreement that enables you to repay only what you can realistically afford to repay over a 48 month period (4 years). After the 4 years has come to an end, any outstanding debts that had been included in the Trust Deed are written off.

Trust deeds are only available to residents of Scotland. If you live in Northern Ireland, Wales or England you should consider applying for an Individual Voluntary Agreement (IVA), which works in the same way as a trust deed.

With a trust deed, some of your assets may be transferred to a trustee (the person administering your trust deed) so that they can be sold to raise money to pay your creditors. A trust deed also requires you to make monthly payments from your salary. 

A trust deed is recorded in the Register of insolvencies as a “protected trust deed”, as long as it meets the given conditions.  This is done to prevent your creditors from taking any legal actions against you to recover any money owed.

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Who Can Qualify For a Trust Deed?

To qualify for a trust deed, you must be a Scottish resident and owe at least £5,000. A Limited Partnership can also qualify a trust deed.

However, A Limited Liability Partnership or a Limited Company cannot qualify a trust deed. Similarly, a couple cannot be granted a joint trust deed.

How Does a Trust Deed Become “Protected”?

A trust deed becomes protected when the trustee notifies all your creditors that the trust deed is protected. A trust deed will also become protected if your creditors don`t reject it. Creditors who do not reply to the trustee within 35 days are assumed to have accepted your trust deed.

To stop a trust deed from becoming protected:

  1. At least 50% of the creditors must reject the trust deed,
  2. Creditors who hold more than one-third of your total debt must object the deed.

After the deed is protected, all interest and charges on your unsecured debts are frozen so that your debts don`t increase.

IVA ADvice

We offer debt solutions to UK residents who are looking to take back control off their finances, we firstly assist you by finding out more about your current situation before recommending to you the most appropriate debt solution for your circumstances.

You must reside in the UK for us to assist you.

Benefits Of An IVA

Reduce Your Monthly Payments
Consolidate your payments into one.
Legally Binding Agreement
Dedicated Account Manager
Stop Creditor contact
Freeze Interest Rates & Charges
How Can I Apply For a Trust Deed?

To check if you are eligible for a trust deed, you can simply use our debt solution finder found here. If you do qualify we will then contact you and go through your financial statement to determine an affordable repayment figure. Once this is agreed, you will be sent the relevant paperwork so you can sign it and return it back to us.

After we have received your paperwork, they will start processing your application. This usually takes 6 to 8 weeks. Your nominated Insolvency Practitioner (IP) (who is also your trustee) will also notify the Accountant in Bankruptcy (AiB) about your Trust Deed. The AiB will then enter your details onto the Register of Insolvencies.

Your insolvency practitioner must then, within 7 days, notify all of your unsecured creditors that you have been granted the Trust Deed.  Your Insolvency Practitioner will also provide your creditors with the following documents:

  1. A Trust Deed.
  2. A detailed Statement of Affairs.
  3. A Claim Form.
  4. The Register of Insolvency entry.
  5. A list any excluded assets from the trust deed agreement.
  6. A list of the payments you’ll be making.
  7. A list of the agreed outlays and distribution prospects.

Your creditors will then be allowed up to 5 weeks from the date your details were entered onto the Register of Insolvencies to reject the Trust deed and prevent it from becoming protected. The creditors who do not respond are assumed to have agreed to the terms of the trust deed.

If by end of the 5 weeks, less than half in number or one third in value of the creditors have objected the Trust Deed, your insolvency practitioner must notify the Accountant in Bankruptcy, but within a further 4 weeks.

If the AiB is satisfied that the disclosure is correct and most of your creditors have accepted the deed, they will enter your details in the Register of Insolvencies.

From the time the AiB records your trust deed in the Register of Insolvencies; your Trust Deed becomes protected. This makes it legally binding and as long as you stick to the terms of the trust deed, you will be debt free after 48 months.

How Long Does a Trust Deed Term Last?

Typically, a trust deed will last for 4 years. However, this length of time may vary depending on whether you can repay your creditors earlier or if you have a property to sell. You can also arrange to make the repayments a little longer depending on your financial circumstances.

When Can You Obtain Further Credit?

After your trust deed is approved, you’ll be legally bound by its terms. You will be required to make the agreed monthly payments for the period of time your plan remains active, which is usually four years. You will not be allowed to obtain further credit during this time.

Once this period is over, you’ll be cleared from any unsecured debts included in your Trust Deed and you’ll be free to try and obtain credit again. Your debts will not be removed from your credit score for a further two years after completing your trust deed (6 years from the start of your trust deed).

In addition, you may not be able to obtain credit immediately after your trust deed is discharged. The decision of whether or not to offer you credit will ultimatly come down to individual lenders.

Does a Trust Deed Impact on My Credit Rating?

A trust deed will affect your credit rating as you are breaking the terms of the original credit agreement (the agreement you first signed when you borrowed the money).

Even after you have completed your trust deed, it will still appear on your credit records for another two years. This may make it hard for you to obtain credit. Since you will not have any outstanding unsecured debts, you can start rebuilding your credit rating again.

Once the 6 years have expired, the debts will be removed from your credit rating.

How Much Do I Have To Pay And How Much Does A Trust Deed Cost?

The cost of a trust deed is determined by the amount of money you can comfortably afford to pay your creditors each month. This figure is obtained by deducting your essential living costs from your monthly income. If your home has equity, then you may have to release some of the equity in the Trust Deed. However, this is only the case if you can afford to remortgage your home at that time, which usually if your entering a trust deed your not in a position to do so.

Your insolvency practitioner, (the trustee of the deed), is paid for all work undertaken, including the cost of setting up and administering your trust deed. The good thing is that these costs are included in your monthly repayments.

What If I Am Self-Employed, Can I Still Qualify For The Deed?

You can still qualify for a Trust Deed even if you are self-employed. All the normal qualifications will still apply. All you have to do is prove your income. Usually, you’ll be asked to provide your financial statements for the last six months. However, your insolvency practitioner may ask for more information so that he can be certain that a trust deed is indeed the best debt solution for you.

Does a Trust Deed cover All My Debts?

A Trust Deed does not cover all your debts. It only includes unsecured debts, such as store cards, credit cards, money owed to finance companies and loans from banks. Inland Revenue, HM Customs and Exercise and other private loans are included in a trust deed.

In addition, a Trust Deed does not include debts, such as secured loans or mortgages. Even if you’ll be making monthly payments to your trust deed, you will also be expected to continue paying any debts that are not included in the Trust Deed, priority debts we call these and its things like mortgages & secured loans.

What’s The Best Option a Trust Deed or a Sequestration?

The decision on whether to choose Sequestration (Scottish Bankruptcy) or a Trust Deed is not easy. The debt solution you choose will depend on your financial situation. Let’s examine the differences between each of these debt solutions.

  • *Minimum Debt Level: The minimum debt needed to enter a trust deed is £5000. On the other hand, the minimum debt level you need to apply for sequestration is over £1,500. This makes sequestration more accessible to lower debtors.
  • *Payment Period: The minimum payment period for a Trust Deed is 48 months. The maximum payment period for Sequestration is 36 months.
  • *Financial Review: Your trustee will be required to review your income and expenditure after 12 months in a Trust Deed and after every 6 months in Sequestration. In both debt solutions, you are required to notify your trustee when your financial situation changes, that is, if your income increases or decreases.
  • *Discharging Of Debts: In a Trust Deed, all unsecured debts are discharged after 4 years when the period of the deed elapses. In Sequestration, on the other hand, you are discharged from your unsecured debts in just 12 months, provided you cooperated with your insolvency practitioner and fulfilled all the statutory obligations.
What Are The Pros And Cons Of a Trust Deed?
Pros of a Trust Deed

The pros of a protected trust deed are as follows:

  1. Once your Trust Deed is granted, all interest and charges on your unsecured debts are frozen.
  2. Your insolvency practitioner will handle all communications with your creditors on your behalf.
  3. Your creditors will be prevented from taking further legal action against you.
  4. You’ll be allowed to make one affordable repayment each month during the term of the deed.
  5. After paying the trust deed for the period of time defined, usually, 48 months, all the remaining unsecured debts will be written off.
Cons of a Trust Deed

Despite the fact that a trust deed has significant benefits, it also has a number of disadvantages that you should be aware of before choosing it as your preferred debt solution.

  1. You will not be allowed to obtain further credit until the term of the trust deed has elapsed.
  2. You cannot be a director a limited company.
  3. Your insolvency practitioner can still petition for sequestration if they believe that it is more advantageous to your creditors.
  4. Details of your deed are entered into the Register of Insolvencies and published in the Edinburgh Gazette.
  5. If you fail to make payments as per the terms of trust deed, it could result in bankruptcy.
  6. Your credit rating will be affected after entering a trust deed.
  7. You may be required to release any equity in your home.

If you have a lot of unsecured debts and you are thinking about entering a sequestration, a Trust Deed could be an alternative way to solve your financial issue. A Trust Deed may the best debt solution for you if you have a regular income and you owe more than £5,000 unsecured debts. Like any other debt solutions, there are pros and cons of a trust deed.

To find out more information get in touch with us here, Contact Us.

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