Tuesday, 10 May 2011

Introduction To Trust Deeds

A large number of people in Scotland are entering the Protected Trust Deed debt solution. This is known as the IVA in England, Wales and Northern Ireland. Last years almost 8,000 people entered a Protected Trust Deed to resolve their debt problems. In this article we'll explain who is suitable for a Trust Deed and who would not meet the criteria

What is the criteria?

You must;

- Be able to repay at least 10% of the money you borrowed over a 3 year period

- Owe at least £10,000 unsecured debt

- Be able to pay £150 towards your debt each month

An example of a Trust Deed

Steven from Glasgow is 30 and married to his wife Karen. Steven has 5 debts (2 credit cards, 2 store cards and an overdraft with his bank) which totals £30,000. Karen has an overdraft totalling £1,500. Steven and Karen has a mortgage which has £100,000 outstanding. The value of the house is roughly 100,000 - there is no equity in their house.

Steven works full time and earns £1,300 each month after tax. The monthly expenditure for Steven is £1,000. So, Steven has £300 disposable income available to pay his debts each month.

The problem is that Steven's monthly contributions to his debts are £800. As a result, Steven is having to borrow money from other credit cards to meet his money payments. A debt management plan is one solution for Steven. If he managed to freeze his interest and charges he could have his debt repaid in just over 8 years. There is also a solution called a debt arrangement scheme (Scotland only) where he could enter a legally binding debt management plan type solution.

Steven would also be applicable for a trust deed as well as sequestration. The Trust Deed would see Steven repay an estimated 30% of the debt he borrowed over a three year period. If he completed the solution he would see his interest and charges, along with the rest of the money he owed, being cleared. Sequestration would also be an option for Steven, with Steven being discharged after one year from the Sequestration. As Steven has available money he would be asked to make a contribution towards his debt for a total of three years.

All debt solutions will negatively effect Steven's credit rating.

When would the Trust Deed not be applicable

Steven would not be suitable for the Trust Deed or Sequestration if the equity in his house was more than his debt. Karen would be entitled to half of the equity in the house, however if Steven had £50,000 equity in his house, then he would be entitled to half of this (£25,000).

The £25,000 along with 36 monthly payments of £300 towards his debt would see Steven repay more money than the actual debt he had

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