Tuesday, 10 May 2011

Protected Trust Overview

There are a number of ways to become debt free for people in Scotland, including general money advice, debt management plan, Protected Trust Deed, refinancing or Sequestration.. One way in which people can solve their debt problems is with a Trust Deed.

What is a Trust Deed?

A Trust Deed is a formal, legally binding solution only available to people living in Scotland. The English, Welsh and Northern Irish alternative would be an IVA. In a Trust Deed you would repay arrangement a percentage of your debt at an affordable rate over a fixed period of time. A Trust Deed will usually last for 36 months however it can last for up to 60 months. If you complete your Trust Deed you will have a percentage of your debt cleared. Anybody entering a Trust Deed will be asked to make a monthly payment of at least £150.  At the end of the solution the money you have paid will be distributed to your creditors on a pro rate basis.  The disposable income paid each month is assessed based on your income and expenditure. 

The Trust Deed process?

If you think a Trust Deed  is right for you then you should consider speaking to a debt advice charity who can point you in the right direction. You would sign the Trust Deed which would then be offered to your creditors. The Trust Deed is also advertised in a publication called the Edinburgh Gazette. If your creditors accept the proposal your Trust Deed will become legally binding and ‘Protected’. The Protection binds both  you and your creditors to the Trust Deed terms.
What’s the criteria for a Trust Deed?

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

Benefits of a Trust Deed?

There are advantages and disadvantages of a Trust Deed. You will asked to make one affordable payment towards your debt each month. The arrangement made in the Trust Deed with your creditors will last for a certain amount of time and it will be fixed so you can see the ‘light at the end of the tunnel’. As long as you fulfil your end of the agreement all interest and charges will become frozen and written off  at the end of your solution. Another benefit is your creditors can  no longer take any action against you once the Trust Deed is Protected. You will only repay a percentage of the money you owe – a minimum of 10%  however the more you repay the more likely your creditors are to accept your proposal.

What are the disadvantages?

There are a number of disadvantages to a Trust Deed. Your credit file will have a default on it which will last for 6 years. This would mean obtaining credit in the future will be difficult. You will generally be able to retain your property, however you will have to release any equity within your assets. You will not be able to remain as a director of any organisation and would have to relinquish this position in a Trust Deed. You may need to sell your cars and downsize, however this is evaluated on a case by case basis. Any assets you own worth over £1,000 may need to be sold or the insolvency practitioner may look to release the equity.

How do I get a Trust Deed?

In 2010, over 9,000 people entered a Protected Trust Deed. The Trust Deed is not suitable for everybody however for people with serious debt problems it may the right option. To get a Trust Deed you first want to make sure there are no other solutions to debt which would be less harmful to your credit rating. The best people to speak to about a Trust Deed is a debt charity who will give you independent advice.


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