If you are one of the tens of thousands of Scottish citizens who face the possibility of sequestration, you have probably spent many months worrying about your debts.
You’ll probably have spent countless hours researching options like sequestration, Trust Deeds and payment plans. You might feel fear, anger and frustration, not to mention trying to cope with a loss of confidence.
You may also feel powerless towards your financial affairs.
For many people in this position, a sense of 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.
For them a Trust Deed throws them a lifeline.
What are the advantages and disadvantages of a Trust Deed compared to Sequestration?
Advantages of a Trust Deed
In This Guide...
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 contact you right up until the time you are sequestered and sometimes even afterwards in the hope of recovering some of the money.
There isn’t the same stigma attached to a Trust Deed that there is with sequestration. There is very little way anyone could find out about your Trust Deed. Many people feel that it is easier to explain as a form of debt assistance or a loan payment plan, rather than bankruptcy.
Self-esteem and confidence
A Trust Deed can help you build up your confidence and give you back a sense of power and control 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, although your debt is gone you may not have addressed the underlying habits which led you to it and you run the risk of repeating the past.
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 hand, 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 the same with sequestration, and while Trust Deeds don’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.
While this sounds bad, you do have some flexibility 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 and make one last attempt to sort out their financial affairs.
A Trust Deed might be able to solve their debt problems and put them on the path of financial and emotional recovery after years of immense strain.
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