A trust deed is often the best solution for someone living in Scotland who is struggling with their finances and needs some help to break free of overwhelming debts.
Trust deeds are a notch below sequestration - the Scottish term for bankruptcy - but can still help you find a similar fresh financial start.
Briefly, a trust deed is an agreement with your creditors for you to pay as much as you can towards your debts for three years.
At the end of the term, regardless of how much you have paid, the remaining debt is written off.
Four steps to starting a trust deed
Finding out whether a trust deed Scotland is the right debt solution for you involves a few simple steps:
STEP 1: Consult a professional insolvency practitioner who has a good track record in dealing with personal debts. Individuals cannot enter in to a deed, the package has to be run by a qualified professional.
STEP 2: Benchmark your finances by working out how much you owe and how much you can afford to pay after taking your priority bills and living costs in to account
STEP 3: Approach your lenders offering a reduced monthly payment based on your disposable income - that’s what you have left each month after paying you priority bills and living costs
STEP 4: If the lenders agree, start the trust deed and keep to the terms for the life of the agreement.
Qualifying for a trust deed
Starting a deed seems straightforward, but some important points need considering:
- You must live in Scotland
- You can only include unsecured debt like credit cards, overdrafts and personal loans in a trust deed
- You can own your home, but the equity - the amount left after subtracting any mortgage or secured loans from the value - must be less than your total unsecured debt
- You must owe money to two or more lenders
Trust deed benefits and pitfalls
Trust deeds offer borrowers a number of safeguards, but in return they also have some drawbacks, especially for homeowners.
Some of the plus points include:
- Unsecured debts repaid or written off usually in just three years
- Lenders must freeze interest and charges on debts
- Lenders cannot contact you about your debt
- Directors and the self-employed can carry on in business
- Lenders cannot force you in to bankruptcy
Some of the drawbacks include:
- You may have to sell assets, like a car or jewellery to pay off your debts
- If your home has equity and you can not raise funds to pay into the trust you may have to sell it
- You may have problems borrowing or opening bank or trade accounts as the deed is filed on your credit record
- You cannot declare bankruptcy during the trust term
What debts can be included in a trust deed?
Only unsecured debt can be repaid through a deed. Some common unsecured borrowings are:
- Unsecured personal loans - these are any loans not tied to your home, like a mortgage, and can include pay day or doorstep loans
- Credit and store cards
- Overdrafts - whether they are agreed or not with the bank
- Catalogue accounts
- Hire purchase
- Council tax or utility bill arrears
- Mobile phone debts
Taking trust deed advice
Trust deeds are just one of a number of debt solutions for people living in Scotland who are facing money problems because they are falling behind with their credit payments - but before committing to one, discuss the other options with a professional debt adviser.