Scottish Trust Deed Pros and Cons

If you’re facing a mountain of debt and the thought of sequestration has already entered your mind, a Scottish Trust Deed could be an alternative way for you to tackle the problem. If you have £10,000 of debt from two or more creditors, and have a regular source of income, a Scottish Trust Deed could work for you.

Like all financial decisions though, there are advantages and disadvantages that need to be weighed up carefully.

Pros of a Scottish Trust Deed

• Reduce Hassle from creditors
Those unsecured creditors who agreed to the terms of your Scottish Trust Deed must leave you alone once it is arranged. Your Trustee will deal with all contact from your unsecured creditors, distributing your payments among them according to the terms agreed in your Scottish Trust Deed.

• Freeze interest and charges
All charges and interest arising from your unsecured debts within the Scottish Trust Deed are frozen. If you meet certain criteria and your Trust Deed is registered as protected, even those unsecured creditors who refused to participate in the Scottish Trust Deed cannot instigate any proceedings against you either.

• Debt Free in 36 months
Your Scottish Trust Deed lasts for only three years, unlike normal debt that can feel like a permanent heavy weight on your shoulders for years on end. With a Scottish Trust Deed you know after three years that the remainder of your debt – up to 90% in some instances – will be written off and you can start again with a clean slate.

• Only your disposable income will be used to pay creditors
While luxuries like gym memberships and holidays will not be allowed, your living expenses such as your rent or mortgage, bills, food and work-related travel costs will take priority in your Scottish Trust Deed budget.

• Able to negotiate
You may be able to negotiate to keep your home rather than sell it. This is a major fear of many people facing sequestration. Being made to sell a beloved family home and move to rented accommodation is immensely upsetting. A Scottish Trust Deed can help prevent this from happening.

• If your a business, carry on trading
If you own a company or are a sole trader, you can still carry on trading. You may even be able to obtain very small amounts of credit, although the terms of your Scottish Trust Deed may stipulate you not attempt to do so.

Cons of a Scottish Trust Deed

• It will affet your credit rating
A Scottish Trust Deed will affect your credit rating. There is unfortunately no way to avoid this, although it is likely your credit record is already being affected if you have missed payments on your debts. However, the effect will be better than sequestration, which will have a much worse impact on your credit rating.

• You may have to remortgage
A Scottish Trust Deed may require you to remortgage your property to release some equity and sell high value items to raise funds to pay your creditors. You will not be expected to sell basic household items such as your TV and computer and you can keep your car if you need it for work and family purposes. The only exception to this is if the car is high value and you may be expected to downsize to something less expensive. If you pay into a pension, you may be asked to stop doing so until the Scottish Trust Deed is complete.

• Only unsecured debts are covered
Only unsecured debts are covered by a Scottish Trust Deed, so any loans secured on your home or through hire purchase agreements are not covered.

• It will be advertisied in the local press
If you register your Scottish Trust Deed for protection, it will be advertised in the Edinburgh Gazette and recorded on the Register of Insolvencies, which is a public record. Theoretically your friends, family or work colleagues may find out. However, it is highly unlikely they will unless they are specifically looking for the information.

• Dont miss a payment!
If you fail to make a payment under your Scottish Trust Deed agreement without first contacting your Trustee for discussion and permission, you may find the Trust deed fails and your unsecured creditors are entitled to pursue you for sequestration. It is sometimes possible to arrange payment holidays or to extend the timeframe of the Scottish Trust Deed in exceptional circumstances, so it’s important you let your Trustee know as soon as you think you might not be able to make a payment.

• Dont take out more debt!
If you run up any new debts in addition to those within your agreement, your new creditors will be able to pursue you for your new debts. Your existing Scottish Trust Deed does not cover debts incurred outside of the agreement. This is why it is extremely important for you to declare all of your debts to your Trustee at the beginning.