Residents of Scotland who are struggling with an unmanageable level of unsecured debt may have several options when it comes to repaying it; one of them is a Trust Deed.
What is a Trust Deed?
A Trust Deed is a formal financial agreement between an individual and their unsecured creditors that usually lasts for three years (36 months) of regular monthly payments.
What are the benefits of a Trust Deed?
First of all, you could be free of your unsecured debts - in most cases - after 36 months; your creditors won't be able to take any legal action against you; and interest and charges on your debts could be frozen.
Once your Trust Deed draws to a successful conclusion, you'll no longer be liable for any outstanding unsecured debt.
What are the drawbacks of a Trust Deed?
When you enter a Trust Deed, your credit rating will be affected. You won't be able to take out any further credit while your Trust Deed is running, and once it's over you'll find it harder and/or more expensive to obtain credit for the time it stays on your credit report (six years from when it starts).
If you are unable to keep up with your Trust Deed payments and your Trust Deed fails, your lenders will be able to take legal action against you. For example, they may petition for your sequestration.
What happens to your home on a Trust Deed?
If you're a homeowner, the mortgage payments you are making now will continue as normal. Your secured lenders (e.g. the bank which provides you with the mortgage) are not bound by the terms of your Trust Deed, but you should find it easier to make your mortgage payments since your Trust Deed payments will be set at a level that you can afford.
If you do own your own home, however, you may be required to release equity you have in your property - this will be used to repay more of your debts.
Can residents of England enter a Trust Deed?
To put it simply, no. This is because the law on insolvency/dealing with debts is different in England than it is in Scotland - so residents of England must enter a different debt solution.
While Scottish residents may be able to enter a Trust Deed to repay their debts, residents of England struggling with unmanageable debts may be able to enter an IVA (Individual Voluntary Arrangement) instead.
An IVA, like a Trust Deed, is a formal financial agreement between a borrower and their unsecured creditors. Instead of lasting for 36 months, like a typical Trust Deed would, an IVA will (in most cases) last for 60 months.
An IVA is only available to people who are struggling with an unmanageable level of unsecured debt that they can't afford to repay within a reasonable period of time, but that they can commit to making regular reduced monthly payments towards. If the borrower can commit to this, their lenders, as on a Trust Deed, will agree to write off the portion of the debt which the individual can't afford to pay back - although they'll only do this once the IVA has reached a successful conclusion.
If, however, residents of England are struggling with unmanageable debts that they will be able to repay over a reasonable period of time, they may find that a debt management plan is more suitable for them.