Trust Deeds are unique to Scotland and are a voluntary, legally-binding arrangement between you and your creditors. Many clients prefer this option over bankruptcy as it is a less formal process. A trust deed involves making an offer to put your disposable income and your assets towards paying as much of your debts as possible. Creditors who accept this offer agree not to enforce payment of the remainder of the debt that they are owed.
A trust deed transfers your ‘assets’ (which are valuable things you own) to a trustee so they can be sold to raise money to pay your creditors and you will often make a contribution from your income.
A trust deed and protected trust deed both require a trustee who is a qualified insolvency practitioner. There should be no upfront costs for setting up a Trust Deed. Instead, your Trustee deducts their fees from your contributions over the duration of the Trust Deed which would normally last 48 months. Any remaining debt after this period would be written off.
The trustee is the person who will decide whether or not you have met your obligations and whether you will be discharged from your debts once the trust deed ends. The Accountant in Bankruptcy (AiB) is responsible for personal insolvency issues in Scotland. They have the power to prevent your trust deed from becoming protected, for example if your outgoings on essentials are much higher than you need.
Important points to remember about a trust deed
- You need to owe at least £5,000 in total to at least two different creditors before you are allowed to apply for a trust deed.
- The trust deed is legally binding only for creditors who agree to the terms of the deed unless it becomes ‘protected’. (See protected trust deeds) Other creditors who do not agree may still try to make you bankrupt.
- As long as you keep to the terms of your trust deed no further interest can be added to the debt and the debt you owe them is ‘frozen’.
- Any monthly payments you make based on your earnings may increase or decrease based on your circumstances.
- Other than an annual statement which by law your creditors must send you, they should not contact you asking for payment once a trust deed is in place.
- Once a trust deed is in place creditors will direct correspondence to the trustee rather than you.
- Some debts cannot be included in a trust deed such as fines, compensation and orders imposed by courts, maintenance due to an ex-spouse for any children under a court order (Not CSA arrears or CMS arrears), or any debts that are secured on your property such as a mortgage or secured loan.
- Your credit rating will be affected and this might make it more difficult to get credit again in the future if you need it.
Protected trust deeds
Only creditors who agree to the terms of a trust deed are bound by it. This means that creditors who do not agree could still try to take further action against you, such as applying to make you bankrupt. However, if your trust deed becomes ‘protected’ this will prevent even creditors who disagree to the terms from taking further action against you, as long as you stick to the agreement.
The trustee writes to all your creditors enclosing a notice of the trust deed and advising them that it is to become protected. Your trust deed will usually become protected unless enough of your creditors object. To stop a trust deed becoming protected usually at least half of the creditors must object or those creditors who hold at least one third of your total debt must object
Important points to remember about a protected trust deed
- If a trust deed becomes protected debts are frozen and no further interest is added as long as you keep to the terms of your protected trust deed.
- Creditors who do not reply to the trustee within five weeks are treated as if they have agreed.
- Priority and non-priority debts
- Bank accounts and debt
- Drawing up a budget sheet
- Negotiating reduced payments to your debts
- Free Debt Management Plans
- Debt Arrangement Scheme
- Trust Deeds
- Formal bankruptcy or a ‘sequestration’
- Write Offs
- Will I be 'blacklisted'?
- What can creditors do if I don't pay?
- Should I tell creditors about my mental health?
- Getting help from a specialist adviser
- Next steps