As with any insolvency process there are consequences of entering into an Scottish Trust Deed. These are outlined below.
A Scottish Trust Deed will affect your credit rating. There is unfortunately no way to avoid this, although it is likely your credit record is already being affected if you have missed payments on your debts.
Only unsecured debts are covered by a Scottish Trust Deed, so any loans secured on your home or through hire purchase agreements are not covered.
When you grant your Scottish Trust Deed, it will be recorded on the Register of Insolvencies, which is a public record.
Granting a Trust Deed could mean that your house may be sold and you might have to move home, unless it is excluded under the legislation or you can make alternative arrangements.
The exclusion terms are quite complicated and are set out in section 2.8 of the Accountant in Bankruptcy’s Trust Deed Guidance, but they generally apply only to your main residence if it has little or no equity.
However, even if your property is not excluded you may be able to agree to make additional payments into your Trust Deed in lieu of the equity or arrange for a remortgage or third party contribution, to pay for any equity within your home, so you have several options to avoid having to sell.
More information of how Trust Deeds can affect your property can be found here. A Scottish Trust Deed may also require you to sell high value items to raise funds to pay your creditors. You will not be expected to sell basic household items such as your TV and computer and you can keep your car if you need it for work and family purposes.
The only exception to this is if the car is high value and you may be expected to downsize to something less expensive. If you pay into a pension, you may be required to reduce your payments or stop making payments until the Scottish Trust Deed is complete.
If you fail to make a payment under your Scottish Trust Deed agreement without first contacting your Trustee for discussion and permission, you may find the Trust deed could fail and you will not then be discharged from your debts.
It is sometimes possible to arrange payment holidays or to extend the timeframe of the Scottish Trust Deed in exceptional circumstances, so it’s important you let your Trustee know as soon as you think you might not be able to make a payment.
If you run up any new debts in addition to those within your agreement, your new creditors will be able to pursue you for your new debts. Your existing Scottish Trust Deed does not cover debts incurred outside the agreement. This is why it is extremely important for you to declare all of your debts to your Trustee at the beginning.
The unsecured creditors who agreed to the terms of your Scottish Trust Deed cannot take any further action for recovery of their debt once your Trust Deed is protected. Your Trustee will deal with all contact from your unsecured creditors, distributing your payments among them according to the terms agreed in your Scottish Trust Deed.
Your Scottish Trust Deed typically lasts for only four years, unlike normal debt that can feel like a permanent heavy weight on your shoulders for years on end. With a Scottish Trust Deed you will be discharged from unaffordable debts, the remainder of your debt will be written off.
Your income and expenditure is assessed against agreed guidelines called the Common Financial Statement and our dedicated team will help explain what you can and cannot include in your budget. Your appointed Trustee will reassess your income and expenditure at least once every year.
You may be able to negotiate to keep your home rather than sell it. This is a major fear of many people facing sequestration. Being made to sell a family home and move to rented accommodation can be distressing. A Protected Trust Deed can in certain circumstances help prevent this from happening.
If you own a company or are a sole trader, you can still carry on trading, although you may need special permission from the company if you are a director . You may even be able to obtain very small amounts of credit, unless the terms of your Scottish Trust Deed say that you cannot.