Scottish debt solutions: Trust Deeds

22 May2009

If you have large debts that you do not think you will be able to repay within a reasonable period of time, then your first thought may be filing for sequestration (bankruptcy). However, a Trust Deed could help you clear your debts while avoiding some of the downsides of sequestration.

Trust Deed: an alternative to bankruptcy

A Trust Deed is a legally binding agreement between you and your unsecured creditors, in which you will agree to repay a percentage of your debts to your creditors, based on how much you can afford once your essential costs have been taken into account.

Before you can enter into a Trust Deed, you will have to discuss your situation with a debt adviser. If your debt adviser feels it is the right debt solution for you, they will refer you to an Insolvency Practitioner (IP). Your IP will work with you to draw up a proposal, which will then be sent to your lenders.

So long as this proposal is not rejected by more than half of your lenders, or by lenders accounting for more than a third of your debts between them, your Trust Deed will be approved - protected by law.

If your Trust Deed is approved, you will then make regular payments to your Insolvency Practitioner, who will subsequently distribute the agreed amounts to each of your lenders. This will usually continue for 36 months (three years), after which your remaining debt will be written off.

What are the downsides of a Trust Deed?

A Trust Deed will be recorded on your credit history for six years, meaning that for three years after it has finished, you may still experience difficulty obtaining credit.

During the Trust Deed itself, you will be unable to borrow any money over the amount of 250 without declaring the Trust Deed to your lender.

If you own your home, you may also be required to release any equity in your property (up to the value of the total debt).

Should I consider any other debt solutions?

Like any debt solution, a Trust Deed is not suitable for everyone. You should always start by discussing your circumstances with a debt adviser, who can recommend the right debt solution for your individual needs.

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