There are a number of ways to become debt free for people in Scotland, including general money advice, debt management plan, Protected Trust Deed, refinancing or Sequestration. One way in which people can solve their debt problems is with a Trust Deed.
What is a Trust Deed?
A Trust Deed is a formal, legally binding solution only available to people living in Scotland. The English, Welsh and Northern Irish alternative would be an IVA. In a Trust Deed you would repay arrangement a percentage of your debt at an affordable rate over a fixed period of time. A Trust Deed will usually last for 36 months however it can last for up to 60 months. If you complete your Trust Deed you will have a percentage of your debt cleared. You will be asked to repay as much of the debt as you can over the period of the debt solution. If you have any assets these will need to be added into the debt solution, however you may still be able to retain your house. Anybody entering a Trust Deed will be asked to make a monthly payment of at least £150. You must be able to meet a 10% return to your creditors for the solution to be accepted. The more money you can repay to your creditors the more likely your solution will be accepted. At the end of the solution the money you have paid will be distributed to your creditors on a pro rate basis. The disposable income paid each month is assessed based on your income and expenditure. If your disposable income changes during the solution then this will be accounted for and this may fluctuate up as well as down.
The Trust Deed process?
If you think a Trust Deed is right for you then you should consider speaking to a debt advice charity who can point you in the right direction. You would sign the Trust Deed which would then be offered to your creditors. The Trust Deed is also advertised in a publication called the Edinburgh Gazette. If your creditors accept the proposal your Trust Deed will become legally binding and 'Protected'. The Protection binds both you and your creditors to outlined terms.
What's the criteria for a Trust Deed?
- Be able to repay at least 10% of the money you borrowed over a 3 year period
- Owe at least £10,000 unsecured debt
- Be able to pay £150 towards your debt each month
Benefits of a Trust Deed?
There are advantages and disadvantages of a Trust Deed. You will asked to make one affordable payment towards your debt each month. The arrangement made with your creditors will last for a certain amount of time and it will be fixed so you can see the 'light at the end of the tunnel'. As long as you fulfil your end of the agreement all interest and charges will become frozen and written off at the end of your solution. Another benefit is your creditors can no longer take any action against you once the Trust Deed is Protected. You will only repay a percentage of the money you owe - a minimum of 10% however the more you repay the more likely your creditors are to accept your proposal.
What are the disadvantages?
There are a number of disadvantages to a Trust Deed. Your credit file will have a default on it which will last for 6 years. This would mean obtaining credit in the future will be difficult. You will generally be able to retain your property, however you will have to release any equity within your assets. You will not be able to remain as a director of any organisation and would have to relinquish this position in a Trust Deed. You may need to sell your cars and downsize, however this is evaluated on a case by case basis. Any assets you own worth over £1,000 may need to be sold or the insolvency practitioner may look to release the equity. If your asset has no equity within it then there are a number of ways the insolvency practitioner may look to deal with the asset. In most cases people are able to keep their homes. There are a number of debt solutions available to people in debt and the correct solution will depend on your income, expenditure, available income each month, level of debt, assets and how long you want to be repaying your debt back.
How do I get a Trust Deed?
In 2010, over 9,000 people entered a Protected Trust Deed. The Trust Deed is not suitable for everybody however for people with serious debt problems it may the right option. To get a Trust Deed you first want to make sure there are no other solutions to debt which would be less harmful to your credit rating. Failing to repay all of the money you borrowed, along with interest and charges will have a negative effect on your credit history and impair your ability to gain future credit. The best people to speak to about any debt solution is a debt charity who will give you independent advice. The charity owners are unable to receive any money as a salary or bonus for the their efforts. This means they are not benefiting financially from your debt problems. Charities are also preferred to for profit companies because there is typically less pressure to follow one debt solution, which would make the company most money. If you would like charity face to face debt advice then the citizen advice bureau is on hand to offer this service. Due to the demand facing the citizens advice bureau you may wish to consider a for profit company who will charge you for face to face advice or call a telephone based debt charity who will not charge you for their service and will be able to provide immediate help.
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Debt Support Trust is a debt advice charity based in the UK and can help find the best debt solution for people in financial difficulty. Whether you are suitable for a Trust Deed , sequestration or Lila they can help you.
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