A Scottish Trust Deed is a debt solution that provides a formal and legal method of resolving debt problems which have reached the level where an individual is unlikely to be able to repay their debts.
It has been put in place by the Scottish Government as a necessary requirement where normal methods of resolving a debt problem have failed and a structured process is needed to rectify the situation. A Trust deed is a form of insolvency which means your assets are transferred to a Trustee who will be responsible for administering the process and distributing the appropriate funds to your creditors.
From a practical point of view a Scottish Trust Deed enables people with overwhelming debts to agree a repayment amount to their creditors that they can afford which would normally be paid over a period of four years and then allow their unaffordable debt to be written off.
A Protected Trust Deed
Once a Trust Deed becomes protected it provides legal protection to the debtor and stops the creditors from pursuing formal demands and any kind of court action. A Trust Deed now automatically becomes protected from the date it is registered by the Accountant in Bankruptcy in the Insolvency Register.
There are other effects of protected trust deed status which include details such as an earnings arrestment no longer has effect, and equity amounts in property are fixed at the date of the trust deed.
Once a trust deed is protected both the debtor and creditor must abide by its terms.
How the process works
A licensed Insolvency Practitioner must be appointed to administer the Scottish Trust Deed process and they become responsible for dealing with the creditors and ensuring the legal requirements are followed.
The first stage is for an amount to be agreed with the debtor that will be repaid to the creditors and then this is formally proposed to the creditors by the Insolvency Practitioner. This is an important part of the process, as at this stage, what is also being agreed effectively is how much debt the creditors will accept to be written off.
Once this is agreed the trust deed can be put into effect and will normally last for four years. As long as the debtor abides by the terms then they will be discharged at the end of the four year period and the remainder of their debt is written off.
There are important considerations to take into account for home owners. The Insolvency Practitioner will normally sell what is classed as non-essential assets in order to realise funds that will be repaid to the organisations who are owed money. A family home would be classed as a non-essential asset although a house can be exempted from the trust deed. The Insolvency Practitioner also has the authority to facilitate the release of equity in a debtors home, where it is jointly owned, either through a third party buying over the proportion of the debtors equity or by agreeing some form of payment from ongoing income to cover any deficiencies due to the house not being sold.