Tuesday, 13 September 2011

"Can I enter a Trust Deed"?

The Protected Trust Deed is only available to people living in Scotland with serious debts. 

What is a Trust Deed?

A Trust Deed is a legally binding arrangement between someone in debt and their creditors. A licenced insolvency practitioner is required to administer the solution. The Trust Deed is legally binding which means, if accepted, both you and your creditors would have to adhere to the terms of the Trust Deed for the full period (usually 36 months). The Protected Trust Deed is an insolvency solution for people who cannot afford to pay their contractual obligations to their debt as they fall due.

The process to enter a Protected Trust Deed is as follows
  1. Contact a debt advice charity to ensure a Protected Trust Deed is the right advice. 
  2. If it is you would need a licenced Insolvency Practitoner to adminster your case (there are a number of insolvency practitioners in Scotland)
  3. The insolvency practitioner would create a proposal and send it out to all of your creditors. The proposal would include how much you propose to repay and over what period of time
  4. A notice is placed in the Edinburgh Gazette about your Trust Deed
  5. After 5 weeks, if less than a 1/3 in value or a majority in number DON'T object to the Trust Deed it will have gained Protection.
  6. The insolvency company will then register your Protected Trust Deed with the Accountant In Bankruptcy.
Each year your insolvency company will review your Protected Trust Deed to ensure the payments are still manageable. The Protected Trust Deed is flexible so your payments can increase as well as decline depending on your available income.

You cannot enter a joint Protected Trust Deed as the debt solution is individual. This means a husband and wife would need to enter individual Protected Trust Deed's. The insolvency company may decide to enter one Edinburgh Gazette advert as this would save money on the case.

General criteria to enter a Trust Deed?
  • Must owe at least £10,000 of unsecured debt
  • Must be able to repay at least 10% of the unsecured debt over 3 years (excluding the insolvency practitioner fees - ranging from £2,000 to £6,000).
  • If your equity from an asset (house, car etc) plus 36 monthly payments is more than your total debt then a Protected Trust Deed would not be the best debt solution.
  • You must have at least 2 different creditors. 
Positives of the Trust Deed?

There are positives and negatives to entering a Protected Trust Deed and you should always seek professional advice prior to entering any debt solution.  
  • Benefit 1: You can make affordable repayments towards your debts instead of trying to rob Peter to pay Paul.
  • Benefit 2: You will write off some of your debt (typically 50%).
  • Benefit 3: You can be sure of when the Protected Trust Deed will end (usually 3 years but your insolvency practitioner would inform you of this).
  • Benefit 4: A Protected Trust Deed is a formal agreement for both you and your creditors which must be adhered to.
  • Benefit 5: The Insolvency company will manage all creditor correspondence on your behalf.
  • Benefit 6: Once your Protected Trust Deed has been agreed with your creditors they cannot change their mind at a later date, giving your security and protection.
Negatives of the Trust Deed?

The negatives of the Trust Deed should be considered extremely cautiously before proceeding. These include;
  • Negative 1: It's legally binding so you will have to continue to make payments to your Protected Trust Deed, even if you don't want to continue.
  • Negative 2: If you decide to stop paying your Trust Deed your Insolvency Practitioner would have a legal obligation to proceed with Bankruptcy.
  • Negative 3: You can only include unsecured debts in your Protected Trust Deed - any others, such as your mortgage cannot be concluded. If you fail to maintain payments to secured debts then the items can be repossessed.
  • Negative 4: A default will be added to your credit file and will last for 6 years. 
  • Negative 5: Your house / flat is typically secure, however any equity would need to be released to enter into the Trust Deed. 
  • Negative 6: You cannot obtain further credit whilst in your Protected Trust Deed.
Trust Deed Case Study

Steven (29) and Dawn (31) from Dundee have two children and entered into a Protected Trust Deed. They didn't have a car and they lived in a housing association. Their debt was £15,000 each and they planned to pay £170 each.

Evan (43) from Glasgow entered a Protected Trust Deed with £42,000 debt and a disposable income of £350. Evan also had equity in his property of £7,000 which he had to release via remortgage. In 3 years Evan will be debt free and discharged from his Protected Trust Deed.

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Top Trust Deed Areas
  • Glasgow
  • Edinburgh
  • Dundee
  • Falkirk
  • Inverkeithing
  • Stirling
  • Aberdeen
  • Kelso

Thursday, 8 September 2011

Equity Release: Debt Solution

A debt charity has warned that over 55's are increasingly turning to equity release schemes in a bid to repay their credit card, personal loans and other debts which are unsecured. The CCCS found the average debt to be just under £23,000.

As personal budgets are squeezed ever tighter the outcome for consumers is bleak. Rising costs of electricity, gas, fuel and as expected an interest rate rise, are likely create a devastating strain on UK consumers.

The equity release scheme is one option to gain access to the capital tied up in an asset, such as a house. This option enables the person in debt to use the cash now and repay it within their mortgage. One benefit of the equity release scheme

Problems with Equity Release

There are problems with equity release, especially for people nearing retirement, as they will have a larger mortgage to repay and fewer working years to be able to manage the repayments. In the end, it could mean downsizing and selling the property with the potential future outcome of renting.

Also, whilst the equity release service from the CCCS is free to use, it requires a mortgage lender willing to provide the capital. The unsteady market conditions means releasing equity is very difficult, especially for people with defaults or arrears.

Be aware, with equity release schemes you are changing one debt which is unsecured (credit card, store cards, personal loans etc) for other secured debt (on your mortgage). You are not clearing the debt, just including it within your mortgage.

Full Debt Advice

It's essential people get full and honest debt advice before they take action and decide to release equity from their house. Planning for the future is essential. For example, somebody with a debt of £22,000 and a disposable income each month of £300 could be debt free in just over 6 years (if interest and charges were frozen, oh, and if they don't use a fee-charging debt management company!!). The decision is ultimately the consumers, but they could choose a debt management plan or an equity release option to resolve their debt problems.