Trust Deeds

1. What is a Trust Deed?

It's a legally binding agreement between you and your creditors, designed to help you clear your unsecured debts without entering into bankruptcy / sequestration.

Basically, you agree to spend a set time period (usually three years) paying an agreed amount into the Trust Deed every month. Your creditors agree not to take any further action against you, not to contact you about your debts, and to write off all unpaid debt at the end of that period.

If your creditors do not object to your Trust Deed, it will become protected, which means neither you nor they are allowed to change your minds – as long as you keep up with your commitments, you WILL be debt free at the end of the Trust Deed.

A Trust Deed can only be set up with the help of a licensed Insolvency Practitioner (IP).

2. How do I set up a Trust Deed?

There are four steps involved in setting up a Trust Deed through debt-2-Go.

Step 1

Call us. One of our advisers will discuss your financial situation with you. If it looks like a Trust Deed is the best solution for you, they will discuss your creditors, income and expenditure with you, so we can calculate how much you can afford to pay every month after you've allowed for your secured debts and essential living expenses.

Step 2.

You can have a face-to-face meeting with one of our representatives in the comfort of your own home, or we can discuss the process over the phone. We'll go through the whole process with you, answer any questions you may have and make sure you understand and approve of the Trust Deed proposal we've drawn up for you.

Step 3.

We'll provide your unsecured creditors with details of your Trust Deed proposal. We will also advertise the details in the Edinburgh Gazette. This gives your creditors the opportunity to object to the Trust Deed within the time allowed.

Step 4.

5 weeks later, your Trust Deed will become protected by law, unless there are objections from more than half of the creditors – or from creditors who collectively 'own' more than a third of your debt. As long as you keep up the payments, you WILL be debt free when it's finished (in most cases, 3 years from the day it begins).

3. Why does a Trust Deed require an Insolvency Practitioner (IP)?

A licensed Insolvency Practitioner (IP) is a person (often an accountant or solicitor) who has the experience and qualifications to act in formal insolvency cases.

Your IP is responsible for presenting your Trust Deed to your creditors, ensuring that it takes into account their interests as well as yours, and overseeing the Trust Deed until it is successfully completed.

4. Why would I want a Trust Deed?

A Trust Deed offers various benefits, but the ones which attract most people are:

• 1) No more pressure / worry about legal action from their creditors
• 2) A write-off of the debt they can't afford to repay,
• 3) Significantly lower monthly repayments
• 4) A clear date when they KNOW they will be debt free.

What's more, it can deliver these benefits without many of the drawbacks that come with bankruptcy / sequestration: there's no court process involved; if you're a homeowner you won't have to sell your home; and a Trust Deed won't disqualify you from certain jobs in the way sequestration does.

5. Why would my creditors accept a Trust Deed?

They know that they'll probably get more money back than they would if they pushed for an alternative such as bankruptcy – they know the Insolvency Practitioner (IP) will examine your finances closely and ensure that the Trust Deed takes their interests into account as well as yours.

Plus, a Trust Deed avoids the need for expensive, time-consuming legal action.

6. How much will it cost me?

It's different in every case, as it depends on how much you can afford to pay every month after allowing for your priority debts and day-to-day living expenses. If you're a homeowner, you may also be required to release some of the equity in your home, to increase the amount of money made available.

All fees and costs will be deducted from the payments you make – and you (and your creditors) will know exactly what you would pay (or receive) before you commit yourselves to the Trust Deed.

7. What if I default on a monthly payment?

It depends. The Trust Deed may be extended, giving you some time to catch up with missed payments.

If it's clearly not your fault (if you're made unemployed, for example, or suffer a drop in salary) your monthly payments will be reassessed and may be amended.

However, if it appears that you're simply not co-operating, the Trust Deed will probably be terminated – which means your legal protection will cease and you will once more be faced with handling your debts yourself or finding an alternative professional debt solution.

8. I'm a homeowner – what will happen to my home?

You may be required to release the equity in your home, to increase the amount you can pay your creditors. Please note that a Trust Deed covers unsecured debts only: it will not affect your secured debts in any way, so you will have to continue paying for your mortgage and any debts secured against your home.

9. Does a Trust Deed always last for 3 years?

In most cases, but not always. Under certain circumstances, it may be extended.

10. What happens once the Trust Deed is over?

Once your creditors have received all the funds as laid down in the Trust Deed proposal, that's it – it counts as full and final settlement of your debts. In other words, any unpaid debt is legally written off, and you are officially free of all your unsecured debt.

11. Will a Trust Deed affect my ability to get credit?

Many people considering a Trust Deed feel that they'll never want to borrow again, but this is still an important question.

During the term of the Trust Deed, you will not be able to obtain credit over £250 without telling the creditor about the Trust Deed.

After your Trust Deed has finished, it will remain on your credit rating for three more years, and this may make it more difficult (but not impossible) to obtain credit.

However, your credit rating will also show that your debts have been cleared, which probably would not have happened if you hadn't entered into a Trust Deed. Indeed, they might well have grown instead.

So although a Trust Deed does damage your credit rating, it can be much less damaging than the alternatives, including sequestration (or doing nothing). Plus, six years after the Trust Deed starts, your credit rating will contain no mention of it – or of the debts you're facing today.