A Scottish trust deed is a formal debt management solution. It is the Scottish equivalent to an individual voluntary agreement (IVA) in England. This is a short summary on the Scottish trust deed to help you understand more about what it is, how it works and what its main advantages are. This note is based on the Accountant in Bankruptcy/Scotland’s Insolvency Service’s “Trust Deed Guide” unless stated otherwise.
What is a Scottish Trust Deed?
This is a voluntary agreement between you and your creditors to repay some of what you have borrowed from them. It usually spans four years (although this can vary) and the entire process is managed by your trustee. Do remember that an ordinary trust deed is not binding on creditors, unless they have agreed to it. However, a protected trust deed is much stronger since it is binding on all those that you owe. The trust deed becomes protected if enough of your creditors effectively agree to it.
How it Works
The money required for payments under the trust deed generally comes from income and the sale of any assets, if necessary. Your trustee assesses the extent of your debt problems along with your income levels and proposes the repayment plan which, if agreed and subsequently protected, becomes a legally binding agreement. Of course, your trustee will usually allow you to maintain the things that are needed for your home and family. You can choose your own trustee. In order to protect you, trustees must be qualified practitioners, members of an approved governing body and regulated by legislation. They charge for the work that they do. You are not protected from new creditors if any new debts are incurred after signing the trust deed. Also be aware that once you have a protected trust deed you cannot apply for bankruptcy or a debt repayment programme later on.
A protected trust deed has several advantages which can help to reduce the stress and worry caused by debt. It has the huge advantage of enabling you to make a single monthly payment during the deed’s term, instead of trying to pay all of your creditors individually. Other big pluses are that interest is frozen on signing the deed and the trustee deals directly with creditors so that you no longer have the headache of doing this yourself. Once your trust deed is protected, the good news is that the rights of your creditors become limited. If you keep to the deed’s terms, your creditors cannot make you bankrupt or pursue you for your debt.
When your deed ends, your trustee will issue a very welcome letter of discharge, if you have complied with the deed’s conditions. This means that you will be discharged from any outstanding debts which were due when you first signed the deed (i.e. they will be written off). Hence creditors can no longer pursue you for unsecured money owed when the deed started (except for certain kinds of debt like court fines).
A Scottish protected trust deed clearly has a number of definite pluses that can save you from the worry and stress that so often goes with serious debt problems. However, signing a trust deed is a major decision and so it is absolutely vital to get sound professional advice when considering this debt management solution. So do take time to speak to a professional debt advisor and ensure you get the information you need.