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A trust deed is an arrangement between the debtor and their creditors to repay all or a fraction of their debts. This is conducted through a 'middle-man' - an insolvency practitioner (trustee) - who take payments and divides them between creditors as necessary.
What is a trust deed?
A trust deed is a formal alternative for those wishing to avoid sequestration and is suitable for anyone with unmanageable debt. A trust deed allows you to pay your debts in one affordable monthly payment, usually over four years. At the end of your trust deed any unsecured debt left is written off. A trust deed can become 'protected' if the majority of your creditors agree to it.
Is a trust deed right for me?
A trust deed may be a suitable solution if you can afford to pay something towards your debts but not the full amount your creditors want. A trust deed may impact your personal, financial and professional life so you should carefully consider this option before deciding to apply. Trust deeds are only available for residents of Scotland. In England, Wales and Northern Ireland an individual voluntary arrangement is a similar solution.
Is a trust deed legally binding?
If your trust deed is protected, then the trust deed will be legally binding on all of your creditors and they can't take any further action to recover money owed to them. If your trust deed is not protected, then it won't be legally binding on all of your creditors and some of them may still take action to recover the money owed to them.
How much of my debt will a trust deed write off?
With a trust deed, a considerable amount of your unsecured debt could be written-off. However, this figure will vary depending on your circumstances. This is because the monthly amount you pay into the arrangement is based on your disposable income.
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Trust Deed Pros
Trust deed payments are based on what you can afford. You will make one affordable payment each month.
Your payments will be made over 4 years and once you’ve made your final payment, the remaining unsecured debt will be written off.
If you apply for a protected trust deed and your creditors approve it, they wont be able to take any further legal action against you.
When you enter into a protected trust deed your unsecured creditors are prevented by law from adding further interest of charges to your debt.
The insolvency practitioner (trustee) will manage all creditor communication for you.
Normally, protected trust deeds are a way to avoid selling your home.
If you experience a change in circumstances (such as losing your job) it’s possible to apply to reduce your monthly payment to a level you can afford.
Trust Deed Cons
A trust deed will affect your credit rating as it will be recorded on your credit file for 6 years from the date it’s approved.
Your trust deed will be recorded on the publicly available Register of Insolvencies.
An insolvency practitioner normally takes a charge for their service out of your monthly repayment.
You may be asked to sell some of your assets.
If you miss payments or fail to stick to the terms of your arrangement your creditors could petition for your sequestration (bankruptcy).
A trust deed may affect the terms of your employment.
Any windfalls will normally be expected to be offered as contribution towards your debts in addition to your agreed monthly payments.