Trust Deeds vs Sequestration
If you are one of the tens of thousands of Scottish citizens who face the possibility of sequestration, you have probably spent many months being treated badly by creditors who are not interested in helping you and make things worse by piling on the pressure. You’ll probably have spent countless hours researching options like sequestration, Trust Deeds and payment plans. You’ll feel at the mercy of emotions such as fear, anger and frustration, not to mention trying to cope with a sense of failure and a loss of confidence. You may also feel powerless and resent the loss of control over your financial affairs.
However, for many people in this position a sense of preservation and pride kicks in. They don’t WANT to be sequestered. They know it will wipe the slate clean, but there is still part of them that refuses to give up and feels that the situation can be rescued, that they can sort their financial problems out and feel deeply upset that things have got this far. For them a Trust Deed throws them a lifeline. But what are the advantages and disadvantages of a Trust Deed compared to sequestration. And wouldn’t it just be better to swallow that pride and admit defeat?
Advantages of a Trust Deed
No creditors hassling you
If you have a Protected Trust Deed, your creditors cannot pursue you for money. They can only communicate with your Insolvency Practitioner, thereby relieving a major source of stress for you. With sequestration however, your creditors will continue to hassle you right up until the time you are sequestered and sometimes even afterwards in the hope of confusing you or tricking you into giving them some money.
There isn’t the stigma attached to a Trust Deed that there is with sequestration. Unlike sequestration, there is very little way anyone could find out about your Trust Deed. If anyone does, it is easily explained away as a form of debt or loan payment plan and very few people will bat an eyelid.
Self-esteem and confidence
Sequestration can batter your self-esteem and leave you feeling guilty and unhappy for many months afterwards. A Trust Deed on the other hand can help you build up your confidence and give you back a sense of power over your own financial affairs.
New financial management skills
A Trust Deed develops your skills at budgeting and living within your means. This will give you a firm foundation on which to build the rest of your financial future. With sequestration however, although your debt is gone you may not have addressed the underlying poor habits which led you to it and you run the risk of repeating past mistakes.
Can protect your career
There are certain jobs you cannot do if you have been sequestered, such as holding a position of fiscal responsibility or in public office. A Trust Deed on the other could help you preserve your career in this area and allow you to carry on relatively unscathed.
Disadvantages of a Trust Deed
As good as a Trust Deed sounds, there are some disadvantages to having one compared to sequestration.
Length of Trust Deed
Once the process is put into motion, sequestration happens relatively quickly. You could be debt-free within a couple of months – maybe even weeks - and you can then spend the next few years building up your credit rating until that record of sequestration is removed from your credit file. This is not the case with a Trust Deed. You will be paying off part of your debts for four years during your Trust Deed, so your desire to start building your credit rating will be delayed by four years.
It affects your credit rating
For obvious reasons, your credit rating will be affected by a Trust Deed and you will almost be starting again. However this is also a disadvantage of sequestration, and while a Trust Deed doesn’t look good on your credit file, sequestration can look even worse in comparison.
You may have to sell your property
If you have any equity in your property, you may be required to release it to pay your creditors a further lump sum at the end of the Trust Deed. For many people, the only way to raise this lump sum is to sell their property, although often family members are allowed to step in and offer to pay this lump sum on your behalf to ensure this does not happen. While this sounds bad, you do have some flexibility with a Trust Deed whereas if you are sequestered you have very little and your home will have to be sold to release the equity. If you are have no equity or are in negative equity, an Insolvency Practitioner has the power to order the sale of your home up to three years after your sequestration if your property’s value rises.
While sequestration is often viewed by many as the an ideal way to wipe the slate clean, for some people it is a matter of pride to make one last attempt to sort out their financial affairs. A Trust Deed is that one last attempt and for many it permanently solves their debt problems and puts them far along the path of financial and emotional recovery after years of immense strain.
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