That Britain’s economy is finally showing some tepid signs of life these past weeks should be a comfort to some of us. The UK’s levels of personal bankruptcy have also fallen to their lowest since 2009. However, this doesn’t mean that we are in the clear just yet and it is unlikely to be of any comfort to those already facing insolvency. Such a situation is one of the most distressing that anybody could have the misfortune to endure. Yet sequestration isn’t the only option that someone with overwhelm ing levels of personal debt has to choose from.
There are in fact several courses of action available to somebody seeking to avoid bankruptcy but one in particular, known as a protected trust deed, is open only to those of us who live north of the border. This is a legal agreement, provided for by the ‘Bankruptcy (Scotland Act) 1985’, which allows a debtor to negotiate with creditors to pay off a percentage of their debts over a stipulated period of time. While there is a slightly different scheme in the rest of the UK known as an individual voluntary arrangement (IVA), a trust deed is specific to Scotland and is the country’s most popular form of debt solution.
The legal process
The first thing that must be taken into account is that a trust deed is a complex legal agreement and must therefore be undertaken by an Insolvency Practitioner. Acting as the trustee, it is the IP who will then prepare the proposal and present it to the creditors.
If the creditors accept the proposal, the trust deed becomes ‘protected’. This means that they cannot pursue you for payment, add further interest or charges, and cannot take any court action. From then on, the debtor will pay only a single, consolidated monthly sum for a period of normally four years (This last point is one in which a trust deed differs from an IVA, the latter being carried out over a period of five years). At the end of the four years, the remaining balance will be written off and the creditors will no longer be allowed to pursue the debtor.
Advantages and disadvantages
The advantages of such a settlement are clear. For a start, it is likely that both debtor and creditor will benefit far more from a trust deed than sequestration. The debtor will incur no further charges from the date of the trust deed agreement and will soon have liquidated all debts. Not only this, the contract can be made sensitive to changing circumstances and you may negotiate to retain your home.
However, this form of agreement is not without problems of its own. The first consequence of entering into such a contract is that the details will have to be published in the Edinburgh Gazette and recorded in the Register of Insolvencies. It is also likely to affect credit ratings and disqualify the debtor from holding the position of Director in a Limited Company. Moreover, and perhaps most importantly, if payments to the trust deed are missed there will still be the threat of bankruptcy. This means that assets (all of which will have to have been declared in advance) may need to be sold off for equity.
An effective solution
In spite of these risks, registering a trust deed is still one of the best ways of avoiding bankruptcy. It will allow for a relatively smooth and stress-free path back to solvency. It obviates the need for court settlement and also evades the stigma of a sequestration order. Though it may take some time and effort, it will put you firmly in the direction of full fiscal recovery.