People take out Trust Deeds for many different reasons. Some are desperate to avoid sequestration and a Trust Deed is the last option. For others, it relieves the escalating pressure from creditors. But there is a third group of people who recognise Trust Deeds for what they are; a valuable way to tackle their finances and write off debt once and for all.
There are many ways to write off debt so why choose a Trust Deed to do it? Aren’t there any other options? Of course, but they all have drawbacks, some of them quite substantial.
Negotiating with creditors to write off debt you owe
Chances are you have experienced how unpleasant creditors can be. Every day they deal with people who want to write off debt – sometimes very large amounts – and it has made them cynical, bullying and occasionally downright nasty. If you do go down this route to try and write off debt, be aware it could take a long time, and you may not get as much debt written off as you would like. In addition you may need to generate large amounts of cash to make full and final settlements and get the amount of debt written off you need. It could even be as much as 70% of what you owe.
On the other hand, Trust Deeds involve an Insolvency Practitioner (IP) negotiating on your behalf to secure a payment plan and write off debt you owe. Most major lenders know them and deal with them on a daily basis. Creditors often view an IP in a more favourable way because they know they are dealing with a professional. They also realise that if an IP is involved the situation is serious and you are taking all the necessary steps to ensure that they get some of their money back. Under those circumstances, they may be willing to agree to write off debt on your account at the end of the Trust Deed term – and possibly a higher percentage than they would have been willing to offer if you tried to negotiate yourself.
Setting up a debt management plan to write off debt
You may decide to start off with a debt management plan and then at a later date request your lender accept a lump sum payment and write off debt remaining on your accounts when you are in a healthier financial position. This has three drawbacks.
First, your DMP could run for years until you are in a financial position to make offers. It’s hard enough dealing with all the feelings that get stirred up when you’re in debt, let alone having to deal with those feelings for the next five years while you continue to scrimp and slog to pay off your debts with no light at the end of the tunnel. In contrast, a Trust Deed lasts only three years and then the lenders write off debt that remains on your account. You can see the end in sight right from the beginning and plan your life around it.
Second, there is no guarantee your lenders will stick to the plan you offer. It is quite common for people to be working a debt management plan successfully only to have the lender pop up after 12 months to ‘renegotiate’ and demand full payment. You then have to sort it all out again. Or sometimes they refuse to write off debt on the basis you have been making your payments every month and are not having any difficulty paying.
Third, your charges and interest will still be rising. Your lender may agree to lower your interest rate, but a fair proportion of the debt you pay off will be interest and that will continue to increase as time passes. With a Trust Deed, interest and charges are frozen at the start and you know at the end of the term your lender will write off debt that remains on your account.
Sequestration – the ultimate ‘write off debt’ plan
Sequestration is a major step to write off debt – and could possibly be considered overkill. It is not the quick and easy ‘write off debt’ approach it is made out to be. For example, if you don’t lose your property, perhaps because negative equity means there is no money to release for creditors, an IP still has the power to seize and sell your home for up to three years following sequestration if the value increases. So three years after you are sequestered you could still get a phone call from the IP who dealt with your case requesting a revalue of your property.
Trust Deeds are a little more flexible and there are ways you can keep some assets. Yes, you have to give up the equity in your property, but you may be able to arrange for family to help out with a lump sum that you can pay back. Then your lenders write off debt that remains on your accounts and you are debt-free. They can’t come back and take anything from you in the future.
While Trust Deeds are a big step for many people, they are often the best debt solution available if you want to write off debt permanently without personally dealing creditors, increasing your debt through interest charges or having to take the drastic step of giving up everything you own to sequestration. For more information of Trust Deeds, contact us free on 0800 043 2027
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