Trust Deeds (Scottish IVA) vs IVA - Whats the difference?
Do you know the difference between an IVA and a Trust Deed?
If you’ve started asking for guidance about your debts, it probably didn’t take long before you heard of an IVA or a Trust deed. However, if you’ve talked to anyone other than an IVA or Trust deed expert, chances are you may be a little confused about the differences and even, worse, what you have heard may not even be accurate.
To start with, both of these options are effective strategies for dealing with debt and avoiding sequestration, but they are both very serious undertakings and should only be considered after discussion with an IVA or Trust deed expert. In essence they are a formal legal agreement between you and your creditors to pay back your debt using an Insolvency Practitioner as a Trustee and mediator. However, their power lies in the fact you only pay back what you can afford and after a set period of time the rest of your debt is written off.
So what are the differences between an IVA and Trust Deed?
- IVAs are only available to residents of England and Wales, whereas Trust Deeds are only available to residents of Scotland. In both cases however you only need be a resident for six months prior to applying.
- You must have unsecured debts of at least £15,000 to take out an IVA, whereas Trust Deeds you only need to have unsecured debts of £10,000.
- IVA’s usually last 60 months or 5 years. Trust Deeds on the other hand usually only last 48 months or 4 years, meaning Scottish residents can look forward to a debt-free future a lot sooner. However, this is one area where advice from an IVA or Trust deed expert is necessary because there are circumstances where you have to make additional payments beyond this.
- With an IVA, once it is granted all of your assets must be transferred to your Trustee and you are automatically protected from legal action and pursuit from your creditors. With a Trust Deed, your Trustee has to apply separately to have it ‘protected’ so you can have a Trust Deed without it. This can be useful if you have certain assets that you wish to prevent being part of the Trust Deed, but could cause problems with creditors if they believe you are holding back assets which could pay off your debts to them. As a result, they could knock back the application for your Trust Deed and initiate sequestration. This is quite a complicated area and you need professional Trust deed on all the potential ramifications of doing it.
- An IVA will not be published in the London gazette, however if a Trust Deed achieves a ‘protected’ status it must be advertised in the Edinburgh Gazette.
Apart from these few differences, IVAs and Trust deeds are remarkably similar:
- You should owe money to two or more creditors
- Your contributions are based on your ability to pay and you need to have a monthly income of more than £150
- Only unsecured debts can be part of the agreement
- The interest and charges on your debts are usually frozen
- Any unpaid debts at the end of the arrangement term are written off giving you a completely fresh start
- Both IVAs and Trust Deeds are a good alternative if you cannot opt for bankruptcy because of your job
- Neither IVAs or Trust Deeds impact on your ability to hold public office or be a company director
- All windfalls in excess of £200 must be declared, including inheritances, bonuses and lottery wins.
- Both IVAs and Trust Deeds are recorded on a public register
- Your credit record will be affected by your IVA or Trust Deed and they will appear on your credit file.
Both IVAs and Trust Deeds have helped hundreds of thousands of people find a way out of their debt problems, but you need to weigh up the pros and cons with the help of an IVA or Trust deed expert. Everyone’s financial situation is unique and there are no set rules for which option is best under which circumstances.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
|3||Credit card 2||£4,092|
|4||Credit card 3||£5,399|
|4||Credit card 4||£5,200|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here