What is a Trust Deed?

Trust Deeds are simply a legal agreement between debtors in Scotland and their creditors to pay off their debts over a pre agreed period of time. The Trust Deed is underpinned by the Bankruptcy (Scotland Act) 1985 which created the ‘protected’ trust deed, administered by a qualified Insolvency Practitioner (IP) on behalf of the creditors.

A Protected Trust Deed is a voluntary, but legally binding agreement between an individual (who is unable to pay their creditors) and a licensed Insolvency Practitioner, also known as a Trustee. Only used in Scotland, a Trust Deed is a way for people to deal with their debt problems.

The individual will reach an agreement with their creditors, in which they will begin a monthly repayment schedule based on what they can realistically afford. It will protect the debtor from any legal enforcement of debts which are included in the Trust Deed.

Most people who enter a Trust Deed wish to keep their homes. But where there is equity, that equity will normally have to be realised by maybe re-mortgaging the house, extending the duration of the Trust Deed or getting a third party to assist.

Meanwhile, if certain conditions are met, a Trust Deed may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s sequestration (bankruptcy). All correspondence will then be handled by the Trustee.

A Trust Deed will be in place for a specific period of time, which is usually over four years. Once the agreed period of time is over, any remaining debts that the debtor owns will be written off, and they will become debt free. This will be applied, so long as the debtor has met all conditions of the agreement.

Benefits of a Trust Deed

The Trust Deed is underpinned by the Bankruptcy (Scotland Act) 1985 which created the ‘protected’ trust deed; it can fall under voluntary or protected. It has many advantages for the debtor. Mentioned below are some advantages of a trust deed:

  • Write off 75% of your debt, with complete consent from your creditors
  • End all annoying phone calls and letters from creditors
  • No upfront fees of charges, with a fixed monthly rate
  • Ensure your assets are protected, like your car and house
  • A fresh financial start after the completed agreement

We know that being in debt can severely affect your quality of life, and that’s why a trust deed aims to relieve that burden off your shoulders.

Disadvantages of a Trust Deed

Although a trust deed is a means of escape from debt, it also has some disadvantages which are useful to know before you make the huge step forward. Mentioned below are some disadvantages of a trust deed.

  • Once you enter into a Trust Deed, your credit rating will be affected
  • Details of your legal bind to a Trust Deed will be published by the press
  • Failure to meet the payments of a Trust Deed can send you into bankruptcy
  • Any large or valuable assets may also be sold to realise their value, like a house.
  • If creditors agree to your Trust Deed it will then be recorded in a Register of Insolvencies
  • A Trust Deed can also be registered on a debtor’s credit reference for six years.

When you agree to enter a trust deed you take on all the responsibility and obligation of a regular binding contract to repay your accumulated debt.

For more information on securing a trust deed as an alternative to sequestration, or any queries please contact us today on 0800 158 3539. Our friendly and professional staff will be happy to resolve any concerns you have. So give us a call and be a step closer to a debt-free future.