Protected Trust Deed Case Studies

Mr W has recently separated from his long term partner and now lives alone. He has approx £25,000

of unsecured debt from a personal loan to various credit cards all in his sole name. He rents his home from a local housing association.

As there is now only one wage coming into the house he is now finding it difficult to pay all of his essential bills and does not have enough money left over to service his debt. Once the essential bills are paid he only has £240 left over to pay to his debt. He needs £695 per month to cover his monthly contractual payments.

Mr W sought advice and contacted Debt Support Trust and after we gave the most appropriate advice we advised on a PTD. The trust deed allows Mr W to make an offer to his creditors in the hope he can get this sorted in the next three years. He has no assets like a house or car etc.

After Mr W signed his trust deed the trustee advertised his trust deed in the Edinburgh Gazzette and this gives the creditors 5 weeks to object. As long as a third in value or a majority in number don’t object then the trust deed will become protected. Once it is protected all interest and charges are frozen. (Unless the trust deed is not completed satisfactorily the interest and charges could be added back on).

This means that in three years Mr W will be discharged from the trust deed and all outstanding debt

will be written off.

Introduction to a Protected Trust Deed

http://ukdebthelper.blogspot.com/Introduction to a Trust Deed

Roughly 9,000 enter a Trust Deed in 2010. It's a popular solution for people living in Scotland and in debt. It has a number of benefits including only repaying a percentage of the money you borrowed, with the rest being potentially cleared. There are a number of different debt solutions for people in debt. We're exploring the positives and negatives of the Trust Deed.

Like all debt solutions there are positives and negatives. The Trust Deed is becoming a more popular debt solution, with hundreds of companies looking to offer this debt solution. However the Trust Deed solution comes with a warning and should be considered with great care.

What are the negatives?

With the rise of the Trust Deed debt solution we've seen an increasing number of complaints to the Office of Fair Trading because of unfair practices. This means that people who are not suitable for a Trust Deed are being told it's the right debt solution for them. The money made by companies because of people entering a Trust Deed can be astronomical. This article confirms the truth behind the negatives of the Trust Deed debt solution.

The negatives of a Trust Deed include;

- If you fail to meet your contributions then you would be likely to face Sequestration.
- Your equity within your house must be taken into consideration. Some companies fail to explain that if your equity has not been dealt with by the end of your debt solution then you may have to sell your house.
- Your credit file will have a default on it for 6 years.

When is a Trust Deed right

In many instances the Trust Deed is the right debt solution. When you have severe debt problems and you realistically cannot repay your debts with your available disposable income, then a debt solution is required. If you have equity within your property which could pay your debt in full then you would not be able to enter a protected trust deed.

Who do I speak to

If you have debt problems then you have a choice who you tell. Some people don't even want to tell their closest family. It's essential you get the help you need. We've created some top tips when deciding who to contact for debt help.

1. Never speak to companies who text, email, mail or telephone you. They are the companies most likely to be making the most profit by charging you for simple advice which a free charity could offer.

2. Never feel pressured by a company into signing anything. If they are pressurising you then they are more concerned by the money they can make and will not really care about your financial situation.

3. Check for a consumer credit licence. If the company doesn't have a consumer credit licence then they are breaking the law and not a legitimate debt advice company.

4. Google. Check Google for feedback from other people.
5. Never contact a debt management company. Some for profit companies will only offer one solution- a debt management plan. The debt management plan can be useful for some people, however it is an informal arrangement with your creditors any companies only need a consumer credit licence to administer this solution. If a company only offers a debt management plan and no other solution, then you can quickly find yourself in a long term (40 years) debt management plan.

The options for debt advice

There are a number of options for people in debt and looking for help. Most people recommend speaking to a debt charity because they are not profit focussed. Other people prefer immediate face to face debt advice. In this instance you may need to pay for advice out of your own pocket. Free debt advice can be found at a number of debt charities, with the citizens advice bureau offering face to face charity advice.

Scottish Debt Solution - Protected Trust Deed

Scotland has an independent debt solution for people who face financial problems. It's an agreement between debtors and creditors for a debt repayment. This option was introduced to help people without them having to declare themselves bankrupt and to help creditors regain a portion of the money they are owed.

If a person is on the brink of bankruptcy it would be advised to seek professional help to asses whither they are suitable for a trust deed. The first thing people should understand is how a Trust deeds works, and what the criteria for this debt solution is. If a person has high unsecured debts and are unable to repay these then it could be the best option for them. While a Trust Deed is likely to have a severe impact on a persons credit rating, it is considered a better solution than bankruptcy A person owes 3 creditors a total of £25,000, if this were divided into;

£15,000 is owed to 1st creditor

£5,000 is owed to 2nd creditor

£5,000 is owed to 3rd creditor

This would mean that the 1st creditor would have the majority right and if they refused then it would not be accepted even if the other 2 creditors voted in favour. So long as the creditors agree to accept the payments then the debt solution can begin however they can object the offer within 5 weeks.

A proposal can be accepted if no objection is made or half of the creditors don't object. A creditor is official considered to be notified if a public notice is made in relation to the offer and they don't decide to make any objections. Once the offer has been accepted by the creditor then the trust deed becomes protected because it is then that it is legally binding. Trust deeds are legally binding so as long as a person does not default then the creditors will not be able to change their decision at a later date.

A trust deed can work out well for both the creditors and the debtor because the other solution would be bankruptcy, mean the creditors would get even less. Something everyone must know before going into a trust deed would be that all assets that are unessential to the creditor can be sold by the trustee and included into the trust fund. Commodities or vehicles can be sold if they are not used for work or any other essential need. The amount received from selling these item would then go into a pot before any proposal is made to creditors. If someone has equity in their property then this must be released. Again the money raised from this would go into the pot and once the trust deed is complete then the debtor would be better off then they would have been with an sequestrated. This is because with sequestration the debtor would be forced to sell any asset first. If a person is struggling to get a loan to release the equity then a family member would be allowed to do it on their behalf. Trust deeds help those living in Scotland to pay their debts without having to become sequestrated. While a person is likely to lose assets and possessions with a trust deed, the choice between this and sequestration is one which can't be taken lightly and leaves no choice for those who are in a financial struggle.

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

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.