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 at least £5,000 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 protected. 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.
Interest and charges
All charges and interest arising from your unsecured debts within the Scottish Trust Deed are generally not applied as long as you abide by the repayment plan. If your Trust Deed is protected, even those unsecured creditors who object to the Scottish Trust Deed cannot instigate any proceedings against you either.
Financial stability in 48 months*
Your Scottish Trust Deed normally lasts for only four 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 four years that you will be discharged from the remainder of your debt 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. Your expenditure is assessed against agreed guidelines called the Common Financial Statement and our advisers will help explain what you can and cannot include in your budget. Your Trustee will reassess your income and expenditure at least once every year.
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 can be immensely upsetting. A Scottish Trust Deed can help prevent this from happening.
If you’re a business, carry on trading
If you own a company or are a sole trader, you can still carry on trading, although you may need special permission from the company if you are a director . You may even be able to obtain very small amounts of credit, unless the terms of your Scottish Trust Deed say that you cannot.
Cons of a Scottish Trust Deed
It will affect your credit rating
A Scottish Trust Deed will affect your credit rating for up to six years. 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. Once the six year period is complete your credit rating will start to improve.
You may have to sell or remortgage
Granting a Trust Deed could mean that your house may be sold and you might have to move home, unless it is excluded under the legislation or you can make alternative arrangements. The exclusion terms are quite complicated and are set out in section 2.8 of the Accountant in Bankruptcy’s Trust Deed Guidance, but they generally apply only to your main residence if it has little or no equity.
However, even if your property is not excluded you may be able to agree to make additional payments into your Trust Deed in lieu of the equity or arrange for a remortgage or third party contribution, so you have several options to avoid having to sell. More information of how Trust Deeds can affect your property can be found here. A Scottish Trust Deed may also require you to 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 or assets 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 required to reduce your payments or stop making payments 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 advertised in the local press, but only could be found if someone knows where to look
When you grant your Scottish Trust Deed, it will be 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 would unless they were specifically looking for the information.
If the Trust Deed fails…
If the Trust Deed fails you could face sequestration and interest suspended can be re applied.
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 time frame 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.
Don’t 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.
- Creditors do not need to approve the Trust Deed. Debts not included in an Trust Deed will remain outstanding.
Debt not included within the PTD will remain outstanding
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
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