People in debt have different solutions available to them, depending on where they live.
In Scotland, the Trust Deed is one option and it can leave an individual debt-free after just three years.
Scottish residents who are unable to manage their debt should seek the advice of a debt management professional.
This expert can help them determine whether Scottish Trust Deeds are an appropriate solution to their financial issues.
What Are Scottish Trust Deeds?
A Trust Deed is considered a legally binding agreement within the country of Scotland. It allows an individual to reduce monthly debt payments and prevents creditors from taking additional action while it is in force.
The typical term of this arrangement is three years, after which time any unsecured debt included in the Trust Deed will be written off, allowing the individual to start fresh.
Applying For A Trust Deed And How The Arrangement Works
Scottish residents who have unsecured debts of at least £10,000 to multiple creditors, have reliable income, and are unable to make their unsecured debt payments can apply for a Trust Deed with a debt solution provider, some of whom can be accessed online or over the telephone.
The individual must supply the debt management expert with details regarding income, expenses, and debts. The professional will then calculate how much the individual can afford to pay to unsecured creditors after living expenses are deducted.
Fees involved in this process include a trustee fee and flat monthly payment representing the unsecured debts. A licensed Insolvency Practitioner helps draft the Trust Deed, which serves as a formal offer to creditors regarding the amount that can afford to be repaid.
The details of Scottish Trust Deeds are also published in the Edinburgh Gazette. As long as at least half of the creditors, or those who represent at least one-third of the total unsecured debt, agree to the plan, the Trust Deed becomes protected by law after five weeks.
Creditors tend to accept Scottish Trust Deeds because they are more likely to receive more money than through bankruptcy proceedings and they avoid legal action, which can be time-consuming and expensive.
Once the Trust Deed is approved, the individual begins making the outlined payments. As long as payments are maintained, the Trust Deed will remain in force and is protected so neither the creditors nor the individual can alter it. After 36 payments, the Trust Deed will successfully conclude, with a write-off of any outstanding unsecured debts.
Benefits Of Scottish Trust Deeds
Residents of Scotland who are unable to make their unsecured debt payments may find that a Trust Deed is the ideal solution. It allows them to avoid bankruptcy, also known as sequestration, and protect themselves against additional legal action while the agreement is in effect.
Interest and other charges may be frozen, preventing the debt situation from worsening. In most cases, consumers are able to repay unsecured debt within three years using Scottish Trust Deeds. Once a Trust Deed is complete, there will be no additional liability to covered creditors.
Rather than making a separate payment to each creditor, which can be confusing, the individual makes just one monthly payment to the Insolvency Practitioner, who serves as a point of contact.
The payment amount is adjusted to a figure that the individual can afford. At all times, the individual knows exactly how much has been paid, the remaining balance, and the payoff date. The financial and social consequences of bankruptcy are avoided, no court process is involved, and there are no legal restrictions on employment, so the career is protected.
Trust Deed Drawbacks
Though Scottish Trust Deeds are more attractive than bankruptcy, they do have a negative effect on the credit rating. The information remains on the credit report for six years, which can make it more expensive and more difficult to receive new credit.
During the time that the Trust Deed is in effect, the individual may not take additional credit of more than £250 without informing the creditor that a Trust Deed exists.
If payments are missed under a Trust Deed, the arrangement may be terminated and affected creditors may begin legal action such as submitting a petition for sequestration. (Although, in situations that are not the fault of the individual, the Trust Deed can be extended.)
People who are unsure of whether they can afford to commit to monthly debt payments for three years may want to consider another option. One of the most severe drawbacks is that a homeowner may be required to release equity in the property when entering a Trust Deed arrangement, which may involve remortgaging.
Individuals who earn overtime or a bonus may be required to pay additional money under the Trust Deed. Those who have valuable assets may be forced to sell them or in the case of a car, downgrading may be required.
People end up repaying more of their debt through Scottish Trust Deeds than they would through bankruptcy, something that many find unappealing. In addition, the advertisement that occurs when the Trust Deed is granted can be embarrassing from a social perspective.
Trust Deed Vs. A Debt Arrangement Scheme
Both a Scottish Trust Deed and a Debt Arrangement Scheme (DAS) are agreements between an individual and unsecured creditors. Both require repaying as much of these unsecured debts as is affordable during the agreement period.
The term of a DAS varies based on the individual, while Scottish Trust Deeds typically last for three years. A Trust Deed is not legally binding on unsecured lenders until it is approved by enough lenders to become a Protected Trust Deed.
Note Regarding Credit Impact Of Scottish Trust Deeds
Though a Scottish Trust Deed has a negative impact on credit while it is in force and for three years after it concludes, there are also credit benefits. The credit rating will reflect that the unsecured debts have been cleared.
This can help increase the credit score over time. Without entering the Trust Deed arrangement, these debts would probably still exist and could even have grown.