What is a Trust Deed?
A Trust Deed is a legally binding agreement between you and your lenders that allows you to make one regular reduced payment for a set amount of time – normally four years.
Available only to those living in Scotland, this debt solution has been described as a ‘Scottish IVA’ as the principles are similar. Once protected, all lenders included will be bound to the arrangement and will no longer be able to take any action against you. All interest and charges will be also frozen on the debts included.
How much you need to pay into your Trust Deed will be based on how much it is calculated that you can afford, which is done during the set up of your arrangement. Once you have made all payments, any remaining debt will then be written off.
What will a Trust Deed cost me?
No matter who you set up a Trust Deed with, there will likely be fees and costs needed to run your arrangement. Don’t worry though, as these will be taken out of your monthly payments, so you don’t have to pay upfront or on top of your regular payments.
It’s important to remember that your lenders will know about these fees and will have agreed to them in the beginning in order to get your arrangement protected. It is written into the legislation surrounding Trust Deeds that they must be affordable to you, meaning that even if no fees were taken, your payments wouldn’t be different.
Trust Deed advantages and disadvantages
As with all debt solutions, Trust Deeds come with their good points and bad points, so to help you see what these are, we’ve noted them below for you:
- You will be able to pay back your debts in a manageable way
- Payments will be based on what you can afford to pay
- Lenders can no longer take any action against you
- Interest and charges are frozen on the debts included
- You’ll no longer have to deal with the lenders yourself, your Trustee will do this for you
- Once you have made all required payments, any remaining debts will be written off
- Your job may be affected depending on the industry you work in
- If you are a homeowner, you will be asked to release any equity available near the end of your Trust Deed, which may cause your arrangement to be extended by a year
- If you come into any additional money whilst in a Trust Deed, this will be brought into your arrangement and paid to your lenders
- Your credit score will be affected by the arrangement, making future borrowing a lot harder to do
- If you cannot keep on top of the payments, then your Trust Deed could fail
The Trust Deed process
Dealing with your debts can be a difficult process but going through a Trust Deed doesn’t have to be. As such, we’ve laid out the process step by step for you below:
Make the call
One of the best decisions you can make when you’re dealing with debts or money worries is to get advice.
There are a whole load of companies out there that can offer you free advice and help you make a decision that will work best for your situation. They will talk through this with you and give you as much information as you need about not only Trust Deeds but other options that are available to you as well.
If it is decided that this is the best option for you, the adviser will work out your income and expenditure with you. This will then determine how much you can afford to pay towards your debts and prepares you for the next step.
Now it’s time to prepare your proposal for your lenders. You’ll need to provide all details for the accounts you want to include in your Trust Deed at this stage.
It will be sent to you via email or post and you will need to sign this for your application to go ahead. There will be a lot of information and a whole load of jargon in this document so it’s important that you make sure you read it and ask any questions if you need to – never sign something you don’t understand.
Once you have signed it, your proposed Trust Deed will then be listed (or advertised) on the Accountant in Bankruptcy (AiB) website, which is accessible by your lenders. They are then given five weeks to consider the proposal and either approve or object to it – this is also known as the final objections period.
As long as there are little to no objections once this time has passed, then your Trust Deed will become officially protected. You will be notified of this in writing by your Trustee and this will also be noted on the AiB register.
Life with a Trust Deed
Once your Trust Deed is protected, it is legally binding. This means that from this stage until the end of your arrangement any lenders included cannot take any action against you and all interest/charges on the debts have to be frozen.
All you need to do is make your regular payments and get through the four years. You will usually be asked to complete a review of your situation each year – this is simply to make sure the Trust Deed remains affordable to you.
If your circumstances change at any point, then it’s important to contact your arrangement provider and ask what they can do for you. This solution is designed to be purse-friendly, and you always find that your Trust Deed can be altered to help you.
For those who own their homes, towards the end of your arrangement, you will be asked to try and release equity from your house (if any is available). If you manage to do this, then the money will come into your arrangement and be used to pay back more of your debts overall. If you are not able to do this, your Trust Deed may be extended by a year.
A fresh start
When all your payments have been made, and there is nothing left outstanding, you will be discharged from your Trust Deed. Your lenders will be sent paperwork to confirm this and it is then their responsibility to update their records and close down your accounts.
You will also receive a copy of this paperwork along with a discharge certificate. Your arrangement will then be noted as being complete on the AiB register and will be removed shortly after.
As far as your credit file goes, your lenders will have to report the changes to the credit reference agencies so that this can be updated, and all your debts are changed to satisfied.
Once this has been done, you are free to start again and begin to rebuild your credit score. This will take time so it’s important to be patient, and don’t worry if it doesn’t go up as quickly as you’d like.