Using Trust Deeds to Clear Debt in Scotland

A trust deed helps a person, being buried under debt, an opportunity to appease his creditors by making an attempt to clear his debt. This is very similar, in principle, to the IVA (Individual Voluntary Agreement). The debt management method of IVA is not valid under Scottish Law, so that is where a trust deed is the best alternative to bankruptcy or sequestration as it is called in Scotland.

In a trust deed, an offer is made and distributed amongst the creditors as a means to handle your debt. If the creditors, whom you owe more than 1/3 rd of your debt to, do not overthrow this proposal, then Trust Deed becomes protected and binding to all those creditors to whom the proposal was sent to. This means that the creditors cannot legally press charges against you and can communicate with you only through an appointed Insolvency Practitioner (the Trustee).

A Trust deed helps your consolidate your debt into one easy monthly payment, which can be paid out over a period of three years approximately. Any debt left outstanding after that is written off. So in reality, the trust deed helps you pay creditors less than what you would normally have to pay them. It usually takes up to a month and a half (6weeks) to form a trust fund with this type of debt help arrangement.

To come to this arrangement, the Trustee will put out a notice in the Edinburgh Gazette and circulate a copy of that notice and of the Trust Deed among your creditors. This will let them know of your intention to ‘protect’ the Trust Deed. If no objection is raised by your creditors within the 5weeks of the notice, then your Trust Deed immediately becomes protected. If an objection is raised, but you owe the creditor less than one-third of the total debt, it is not valid and the Trust Deed will be carried through regardless of the protest.

Now Trust Deed is not a loan and is a legally binding contract that you have written up between you and your creditors. You will not necessarily lose any of your assets like your house etc, but if it is transferred to the Trustee under the conditions of the Trust Fund, then the Trustee might sell it to give your creditors their due. This also depends on the type of Trust Fund you enter into and in an unprotected Trust Fund you will not lose your assets. But this Trust Fund (the unprotected one) is usually not acceptable to the creditors.

The Trust Fund will clear almost all your debt, but some will come under the umbrella of this like fines, mortgages, student loans and secured loans. If you have signed a protected Trust Fund, and your property is co-owned, only your half of the property will be sold off to pay your creditors. The creditors might also seek prior approval from the co-owner or any occupant of the house before the sale.

A Trust Deed will affect your credit ratings, but not to a great extent. You will also be asked not to take out any credit till the period of the Trust Deed has come to an end.