What is a Scottish Trust Deed?
A Trust Deed is a form of insolvency. It’s a voluntary, but formal, agreement between you, your creditors and your appointed Trustee (Insolvency Practitioner) to pay back only what you can afford towards your debts. It involves a degree of debt forgiveness – meaning, if agreed, your creditors will write off some of what you owe them.
Once protected, it’s a legal way to help get you back on the road to financial stability. A Scottish Trust Deed is designed for people who have debt and are struggling to meet their monthly repayments. A Trust Deed can help you write off unaffordable debt, if you qualify, and typically lets you pay back what is deemed affordable for 48 months (4 years).
It’s important to consider the following points when thinking about whether a Scottish Trust Deed is the right choice.
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Find out if you qualify
What are the criteria to be able to apply?
- You need to live in Scotland.
- Your debts must be over £5,000.
- You must have a provable form of income.
The amount of debt that will be written off is dependent on your individual financial circumstances and both the agreement of, and amount that can be written off in, a Scottish Trust Deed are subject to creditor approval.
It will affect your credit rating
A Scottish Trust Deed will affect your credit rating. Unfortunately, there’s no way to avoid this, although it’s likely your credit record is already being affected if you’ve missed payments on your debts. You may also struggle to source credit during the period of your PTD and there are restrictions on obtaining credit, as well.
Your lenders can also choose not to approve your PTD.
You may have to sell or remortgage
Granting a Trust Deed could mean that your house may be sold and you might have to move home, unless it’s 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 isn’t 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 (remortgaging may attract higher interest rates and if no remortgage is available the period may be extended) 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 won’t be expected to sell basic household items such as your TV or 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; you may then 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.
Only unsecured debts are covered
Only unsecured debts are covered by a Scottish Trust Deed, so any loans secured on your home or through hire purchase agreements aren’t covered.
It will be advertised
When you grant your Scottish Trust Deed, it’ll be recorded on the Register of Insolvencies, which is a public record.
Don’t miss a payment
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 won’t then be discharged from your debts. It’s 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 your Trust Deed does fail, you risk being made bankrupt.
Don’t take out more debt
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 doesn’t cover debts incurred outside the agreement. This is why it’s extremely important for you to declare all of your debts to your Trustee at the beginning.
Also, it’s important to note that there are restrictions on the expenditure of a person who enters into a PTD.