A Trust Deed is a legally binding agreement between you and your creditors, which allows you to pay back what you can afford over a fixed period, typically four years.
It’s a popular debt solution in Scotland, and helps people deal with unsecured debts such as credit cards, personal loans, and overdrafts.
In this article, we’ll cover everything you need to know about Trust Deeds in Scotland, including how they work, their advantages and disadvantages, and how they can help your get back on track if you owe money to creditors.
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.
What kind of debts can be included in a Trust Deed?
Most unsecured debts
- Credit cards
- Store cards
- Payday loans
- Personal loans
- Unpaid utility bills
Other debts like income tax arrears, overdue HMRC bills, and overdrafts can also be included in your Trust Deed proposal.
What kind of debts cannot be included in a Trust Deed?
Most secured loans
Secured loans – loans that are secured against an asset – can’t be included in a Trust Deed. The most common examples include:
- Auto loans
- Hire purchase agreements
If you have secured debts like mortgage payments, you will be expected to continue paying lenders alongside your monthly Trust Deed contributions.
Other debts that will be excluded from a Trust Deed are fines from court, student loans debts, and any debts that are accrued by illegal means.
What’s the difference between Trust Deeds and Protected Trust Deeds?
Trust Deed without protection
A Trust Deed is a legally binding agreement between you and your creditors to pay back what you can afford over a fixed period, usually four years.
A Trust Deed without protection is essentially another name for the Trust Deed proposal, the stage before your Trust Deed has been approved by creditors.
Protected Trust Deed
A Protected Trust Deed is a formal agreement between you and your creditors that offers the same benefits as a Trust Deed, but with added legal protections.
To be protected, your Trust Deed needs to be approved by your creditors and registered with the Scottish government’s Register of Insolvencies.
Once protected, your creditors cannot take legal action against you, and they cannot increase your debt or interest.
You’ll also have the added benefit of knowing that any remaining unsecured debts at the end of the Trust Deed are legally written off.
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:
Advantages of a Trust Deed – Scotland
- Affordable repayments based on your financial capabilities.
- Legal protection from creditor actions during the Trust Deed.
- Frozen interest and charges on included debts.
- Simplified debt management with a single monthly payment.
- Debt written off after completing Trust Deed payments successfully.
Disadvantages of a Trust Deed – Scotland
- Negative impact on your credit rating for six years.
- Potential job implications depending on your industry.
- Requirement to release home equity near the end of the Trust Deed.
- Any extra income goes into your Trust Deed to pay debts.
- Trust Deed may fail if payments become unmanageable or unaffordable.
The Trust Deed application process
Dealing with your debts can be a difficult process but going through a Trust Deed doesn’t have to be.
We’ve laid out the process step by step for you below:
Seek debt advice
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.
Work with an Insolvency Practitioner on your Trust Deed proposal
Now it’s time to prepare your proposal for your lenders. Your Insolvency Practitioner (a licensed debt professional) will take care of this for you, however you’ll need to provide all details for the accounts you want to include in your Trust Deed at this stage.
Your Trust Deed proposal 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.
Get the approval of your creditors
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.
Start making your monthly payments
Once your Trust Deed has been approved by your creditors, it will be considered ‘protected’, meaning your creditors will no longer be able to take legal action against you.
All that’s left to do is start making your monthly contribution. You’ll make a monthly payment to your Trust Deed for the length of your payment term – usually four years. Once your payment term has ended, any remaining unsecured debt will be written off by your creditors.
Restrictions during your 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.
What happens when my Trust Deed ends?
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.
Will using a Protected Trust Deed harm my credit rating?
Using a Protected Trust Deed will likely harm your credit rating. The fact that you have entered into a debt solution such as a Protected Trust Deed will be listed on your credit file for six years. This will be visible to credit reference agencies and other lenders, and can lower your credit score.
It may also make it more difficult for you to obtain credit during this time. However, it’s important to remember that if you’re struggling with unaffordable debts, your credit rating may already be affected, and entering into a Protected Trust Deed could be a positive step towards becoming debt-free.
Once your Trust Deed has been completed, you can start to rebuild your credit rating by making timely payments and demonstrating responsible financial behaviour.
Am I better with a Trust Deed or the Debt Arrangement Scheme (DAS)?
Deciding whether to pursue a Trust Deed or the Debt Arrangement Scheme (DAS) will depend on your individual circumstances.
Both debt solutions are designed to help people in Scotland deal with unaffordable debts, but there are some key differences between the two.
A Trust Deed is a formal agreement between you and your creditors, where you agree to pay back what you can afford over a fixed period of time, typically four years.
During this time, you’ll be protected from legal action and at the end of the Trust Deed, any remaining unsecured debts are written off.
Debt Arrangement Scheme (DAS)
On the other hand, the Debt Arrangement Scheme is a government-run program that allows you to make affordable payments towards your debts over an extended period of time using a Debt Payment Programme (DPP), without the need for a formal agreement with your creditors.
Given that a DAS isn’t legally binding, there’s a risk that your creditors will still attempt to take legal action over your unpaid debts.
Where can I get debt advice to help me deal with my unsecured debts?
Owing money to creditors can be an overwhelming and distressing experience, particularly if you’re struggling to figure out how you’re going to be able to repay your debt.
At Talk About Debt, we understand the stress and anxiety that can come with financial difficulties.
As a leading UK debt solution provider, we have a team of experienced advisors who can help guide you through the various options available to you.
If you’re looking for a way to ease the burden of debt and take control of your finances, don’t hesitate to contact one of our friendly advisors today.