Trust Deeds - How They Work
A Scottish Protected Trust Deed is a legally binding arrangement and covers unsecured debts only, such as – credit cards, personal loans, car loans, overdrafts, rent arrears, mobile phone contracts, catalogues, council tax arrears, income tax arrears, overpayments from HMRC & DWP. It does not therefore apply to your mortgage or any hire purchase agreements. A Scottish Protected Trust Deed must also be set up by a licensed insolvency practitioner, who becomes the trustee and deals with the creditors on your behalf.
It is important to choose an insolvency practitioner that you can trust as you will have to give details of your assets and income, as well as your debts and creditors, to create a clear picture of your finances.
Stay in your home
The Scottish Protected Trust Deed will take into account the equity in your home – the value after any mortgage – but you this will be checked prior to signing any agreement to ensure you do not have to sell the property. You can also keep a car as long as it isn’t extremely valuable.
The insolvency practitioner will then work out how much you can afford to pay each month and present the proposal to the creditors. As long as at least 75% of your creditors agree, the Scottish Protected Trust Deed can be set up.
The insolvency practitioner will charge a fee (in line with industry agreements) and that will be deducted from the creditors pot.
Protected Trust Deed
The Scottish Protected Trust Deed can take up to five weeks after signing to become ‘protected’, which means the creditors cannot chase you for the money or add any interest or charges to your existing debts. They are also unable to take court action as long as you keep up with the payments.
However, if you fail to stick to your side of the bargain, your assets could be at risk and your creditors could start sequestration (bankruptcy) proceedings against you. To prevent this maintain contact with your insolvency practitioner to ensure no further action is taken and explain your circumstances should they change.
How much debt do I need? A Scottish Protected Trust Deed can be put in place if you have a minimum of £5,000 unsecured debt or more.
Advantages of Trust Deeds
There are a number of advantages to a Scottish Protected Trust Deed. First, you don’t have to deal with your creditors and they will no longer be able to contact you to try to recover their money. The debt also becomes more manageable as you make only one monthly payment, which is affordable and frozen.
In addition, you know that you will be discharged from the debt after four years, so it will not weigh you down indefinitely.
However, a Scottish Protected Trust Deed can have some downfalls. It will, for example, remain on your credit file for six years & during the agreement you are not allowed to obtain further major credit.
It will also be recorded on the Register of Insolvencies to make the creditors aware of your situation.