Debt Solution: Trust Deed

Debt Solution Scotland

There is a vast amount of people who have found themselves trapped by debt. For a variety of reasons people who have never lost control of their finances nor consider themselves reckless find themselves unable to meet their obligations on a monthly basis. Often this is due to short time work, withdrawal of overtime, redundancy, illness the list is endless.

Whatever the reason the impact on people’s social life, family and relationships tend to suffer as a result of financial pressures. It is often at this point at people start to look at what solutions are available to them in order to regain control of their lives.

Protected Trust Deed

One solution which may be appropriate is called a Trust Deed or a protected trust deed. This solution is available to people living in Scotland and whilst it is a legally binding arrangement and therefore a formal and serious solution is not as extreme as entering bankruptcy or sequestration as it is called in Scotland.

Should a Trust Deed be appropriate for your financial circumstances you have the benefit of knowing how long you will be in the solution for and more importantly when you will have completed the solution .The solution typically lasts for 3 years and thereafter you are debt free meaning you can start to rebuild your credit rating and after a further 3 years all history of you having entered a solution will have been removed from your credit file.

A Trust Deed is not suitable for everyone and you should seek advice before considering this as your best option.

How does it work?

All of your debts all totalled and after an insolvency practitioner has identified how much you can afford to pay to your debts on a monthly basis the IP will then take your payment and proportionately distribute the money to your creditors. This solution lasts for 3 years and any outstanding debt after this period is written off leaving you debt free.

What are the negatives?

Your credit rating will be affected by defaults marked on your file; this will last for approximately 6 years in total. You cannot take out further credit during the period of your protected trust deed .It is possible for people to discover you have entered a trust deed although this is unlikely and should you have assets you may well be asked to realise any values to pay towards your debts.

What are the positives?

You will know exactly when your arrangement will finish and you become debt free. Any outstanding money due to your creditors after you have ended the solution will be written off. You can finally answer the door/phone again and best of all you can sleep at night.

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.

Trust Deed - How To Avoid Dishonest Organisations

A Trust Deed is one of the most widely used debt solutions for people in Scotland, yet it is one of the least understood solutions. The Trust Deed debt solution has encouraged many debt companies to spring up and offer these solutions. One of the main benefits of the Trust Deed is that you only repay what you can afford, typically over a three year period, with the rest of the money you owe being cleared.

When a companies identifies someone as being suitable for a trust deed they will collect all the relevant documents from the client. Once all the documentation is collated it is sent to an insolvency practitioner who will pay the company for work carried out.

When a trust deed becomes protected the client will only pay back a proportion of the amount owed and so they are usually unaware of any fees or charges.

Tip: When speaking to an organisation who is going to refer you to an insolvency practitioner you can ask what fee they will get and how this will affect yourself. For the most part fees and charges for the trust deed will not affect you but it is within your rights to know anything that can affect you.

Many people have found themselves the victims of dishonest companies who have manufactured their circumstance so that they would meet trust deed criteria. In some instances the companies would charge the client a setup fee, or even carry out text marketing campaigns advertising that people could "write off 90% of their debt".

Tip: While it is not impossible for someone to pay back just 10% of their debt, it is unlikely in most cases, it also give a false impression to people who are vulnerable about what help is available.

Many of these deceitful trust deed companies have been closed down due to their business practices but new ones are alway opening up. It is also worth doing your homework before speaking to any organisation about your financial circumstances.

Tip: When looking for a debt solution like a trust deed, be careful to not speak with any organisation who have contacted you by text as this will generally be a marketing campaign. One option to stay safe when looking for debt advice is to speak with a debt charity. Also check for a charity registration number and search google to confirm this.

Debt Solution - Protected Trust Deed

Protected Trust Deed is a debt solution which was introduced 1985 and has had a range of changes since then. A protected trust deed was introduced to help people pay as much of their debt as possible and stop them having to become sequestrated. This option is only available to people who reside in Scotland the English, Welsh and Irish equivalent is an IVA.

 

If someone meets the criteria and wishes to go ahead with a trust deed then an insolvency practitioner (I.P) will collate all the relevant documents. Once the I.P has all the documentation they will advertise the trust deed in the Edinburgh Gazette in order to let all creditors know about the proposal. If 1/3 in value or a majority in number of creditors do not refuse the offer then the trust deed becomes protected. Before considering a protected trust deed it is important to understand the criteria, positives and negatives of this solution.

Criteria

• Need to be able to make a monthly payment to your creditors of at least £125
• Unsecured debt must be £10,000 or more
• Need to be in full time employment
• need to be able to repay a minimum of 10% of the money borrowed over the course of the protected trust deed to your creditors

Positives of a Protected Trust Deed

•  Only one monthly payment to the debt
• Interest and charges will be frozen, Unless the Protected Trust Deed fails at any stage, or you receive a windfall, then it is a requirement that interest and charges are repaid.
• Will not have to liaise with your creditors as the insolvency company will do this on your behalf
• Once a Trust Deed is signed it become protected and therefore means you and the creditors will be legally bound by the agreement, which means if the agreement is complete you will be debt free.
• A homeowner may be able to retain their property, the Insolvency Practitioner will only be interested in any available equity
• Will have less of an effect on a persons credit rating than if they entered sequestration

Negatives of a Protected Trust Deed

• If there is any available equity within a property this may have to be included in the Protected Trust Deed proposal
• A Protected Trust Deed may adversely affect a persons credit rating
• Employment contract may not allow someone to enter a Trust Deed - they would need to check this with their employer
• If someone enters a Trust Deed and does not meet the terms of the agreement they are likely to face Sequestration
• A person will have their income and expenditure reviewed regularly and their monthly payments could fluctuate up as well as down

Protected Trust Deed and IVA - 'Clear Debt'

A common problem within the debt industry is the lack of clarity around debt solutions. Some websites state that it's "Easy to write off 100% of your debt" and "become debt free today". The Office of Fair Trading is clamping down on firms stating that this is possible. This article examines the truth behind the solutions where you can repay a percentage of your debt, with the rest being cleared at the end of the solution.

The debt solutions people talk about when it comes to 'writing off debt' includes the IVA and Protected Trust Deed. If you are made bankrupt you will also clear the debt you cannot afford to repay. All of these debt solutions will negatively affect your credit rating because of the default. A default on your credit rating will last for 6 years.

The IVA debt solution

The IVA (individual Voluntary Arrangement) typically lasts for 5 years and you would repay a percentage of your debt. The minimum repayment over the 5 years must be 25% however most people repay a lot more. The proposal is put to your creditors at an official meeting and if they accept the proposal your IVA will be in place. The criteria for an IVA is

- debt of at least £12,500

- minimum disposable income of £200

- at least 3 different creditors

A key criteria for the IVA is that your equity (value of your house minus what is owed to your mortgage lender) within your property does not exceed your debt and 5 years of monthly contributions.

The Protected Trust Deed solution

The Protected Trust Deed is similar to the IVA but is only available to people living in Scotland. There are legal differences between Scottish law and the rest of the UK when it comes to debt.

The Protected Trust Deed would last for typically 3 years and at least 10% of the debt must be repaid over the course of the solution. The Trust Deed is signed and advertised within the Edinburgh Gazette. After 5 weeks, if there are no objections (or less than a majority in number or a third in value) then your Trust Deed will be Protected. The criteria for a Protected Trust Deed is;

- debt of at least £10,000

- Minimum disposable income of £150

- at least 2 different creditors

If you have a house with equity then the money tied up in your house should not outweigh your debt and 3 years of monthly contributions.

There are websites, TV adverts, newspaper columns and leaflets which claim to offer miracle solutions to deal with debt. The truth is that "clearing your debts" is not as simple as it's suggested but there is a route to resolve all debt problems. It's essential when dealing with debt you speak to a not for profit charity with qualified debt advisors who can provide you with honest, transparent debt advice.

There are a number of ways to find debt charities you can trust, including using Google and searching for debt advice charity or even speaking to friends and asking for their help.

Debt Support Trust is a registered debt charity providing debt advice on Protected Trust Deeds and IVAs. The charity offers a wide range of support from benefits advice through to help with bankruptcy advice.