If you’re based in Scotland, different debt solutions are available to the rest of the UK. And while Scottish repayment plans and legal steps are broadly similar, they have some specific and important differences. For example, Scottish Trust Deeds are often compared with the IVA (Individual Voluntary Arrangement) offered in the rest of the UK, but the qualification criteria, length of the repayment arrangement and other aspects are all different.
So, it’s important to make sure you’re researching the right solutions for your problem debts. And basing your decisions on the correct information. If you feel rushed and under pressure due to creditors chasing you, it’s more likely mistakes might occur.
Your first step should always be to contact your creditors and let them know you’re organising a solution for repayment, which is quick and simple using our DebtBuffer letter templates to guide you. And you can also let them know if you’re potentially classed as a vulnerable person due to illness, mental health issues, or a recent event, which means you should receive more care and consideration in how you’re contacted about your debts. In Scotland, applying for a Protected Trust Deed allows you to apply for a moratorium, which prevents creditors from taking action for six weeks (although it doesn’t stop interest or charges, and may impact your credit rating).
What is a Trust Deed?
A Trust Deed is a voluntary arrangement (unless it becomes protected) between you and your creditors to pay a regular affordable monthly amount towards your debts. It will normally last for a minimum of 48 months, and any interest or charges are frozen. At the end of the period, any debts which remain unpaid will then be written off.
You can include any unsecured debts including credit cards, store cars, overdrafts and personal loans, and also outstanding car parking charges, overpaid tax credits due to HMRC and overpayment of DWP benefits. Some of the debts which can’t be included are student loans and court fines.
The organisation and management of the Trust Deed is handled by an insolvency practitioner, acting as your trustee. They will look at your belongings and assets, and you may be required to sell some of them to repay your creditors.
How does it become a Protected Trust Deed?
A trust deed is not binding on your creditors, and they are still able to take action to recover the money owed. However, if the majority of creditors are happy with the terms of the trust deed, then it can become protected.
A Protected Trust Deed is binding for all creditors. This means they can’t take any steps to recover debts.
How do you qualify for a Trust Deed?
Trust Deeds are an option if you meet the eligibility criteria. To be able to qualify, you need to:
- Reside in Scotland.
- Have at least one debt.
- The debt amount must be over £5,000
- Receive an income
- Be able to make a repayment amount after covering your living expenses.
Don’t panic if you might not qualify for a Trust Deed as there are other Scottish debt solutions, including the Debt Arrangement Scheme (DAS). Unlike the similar Debt Management Plan available in England and Wales, a DAS is legally binding and guarantees all interest and charges are frozen.
To qualify on a residence basis, you must live in Scotland, or have lived there in the last 12 months. It’s also possible to qualify if you have a place of business in Scotland. And it’s not unusual for someone to enter a Trust Deed whilst living in England, Wales or Northern Ireland, or move abroad whilst continuing to pay it.
Are Trust Deeds a good idea?
Only you can decide whether a Trust Deed will be a good idea for your individual situation, ideally after getting expert support from a specialist debt adviser. But they do have a number of advantages which can be appealing to any struggling with problem debts.
- With a protected trust deed, your creditors are not allowed to contact you, and need to work with your trustee instead.
- A protected trust deed also means no more debt enforcement action. You can cover yourself with a 6-week moratorium whilst arranging things, and once the trust deed becomes protected, your creditors will be bound by it.
- Debts are written off when you are discharged from a Trust Deed after four years.
- You don’t have to show you’re unable to pay your bills when they are due, which is required for sequestration (bankruptcy in Scotland)
- You are not barred from certain types of employment or public office. But there are implications for the self-employed.
- There’s no legal restriction from potentially obtaining credit or a mortgage, although this may be difficult due to your credit history and situation.
What are the disadvantages of Trust Deeds?
All debt solutions have some potential downsides, depending on your circumstances. For some people with debt problems, the disadvantages of Trust Deeds won’t be an issue that affects them. But others may need to decide whether the positives outweigh the negatives.
It’s always best to get impartial expert advice to help you decide which debt solution is the best one for your debts. The main disadvantages of Trust Deeds are:
- Your insolvency practitioner will charge a fee and a percentage of assets that they gather to cover their costs. And this can be expensive, so you may need to check a number of providers to find the best deal.
- The Trust Deed will affect your credit rating for six years from the starting date.
- Some of your assets may need to be sold, potentially including your home. Typically, it will only be in more extreme cases where your home might need to be re-mortgaged or sold.
- You can’t be a director of a limited company, unless the term of your trust deed specifically allows it. You might also have to stop running your own business, and it will either be sold, or the trustee might arrange for someone else to run it.
- Any unexpected windfalls or property you receive during your Trust Deeds can be claimed and used to pay your creditors.
- You’ll also need to cooperate with your trustee, or they can apply to make you bankrupt.
- The Trust Deed will also be public record via The Register of Insolvencies
How do you set up a Trust Deed?
The first step to setting up a Trust Deed will be to apply to creditors for a moratorium, and taking an in-depth review of your debts and financial circumstances. This can be done with a debt advisor to ensure you’re coming up with realistic plans for monthly payments and how your assets will be handled.
The next stage will be for your Trustee to set out the terms and agreements of the arrangement, let you sign it off, and then make a proposal to your creditors.
If you wish to exclude home equity or assets, you may propose an extended payment term beyond four years in lieu of selling or remortgaging.
Your Trust Deed will be registered on the Accountant in Bankruptcy website, where your creditors can access it, and they will also receive it by post within seven days. From that point they have five weeks to decide whether to accept or reject your Trust Deed, by contacting your Trustee. If they fail to respond, it’s assumed they have agreed.
If the majority of creditors agree, your Trust Deed can be registered as protected, and you will be free from legal action. Plus, all interest and charges on your account will now be frozen. If not, then the Trust Deed will have no legal standing.
Having a Trust Deed rejected by most, or all, of your creditors will usually mean that creditors think they will get more money from you if you were sequestrated. You may want to consider this option, or you could look at a Debt Arrangement Scheme as an alternative. In either case, it’s important not to panic, and to get expert advice on your next steps.
Once it’s in place, your Trustee will review your income and expenditure on a regular basis, usually every 6 or 12 months. And you’ll need to keep them informed of any changes to your circumstances.
What is it like to live with a Trust Deed?
While your Trust Deed is in place, you’ll need to manage your budget carefully, and keep your Trustee informed of any changes, plus have regular financial reviews.
That may sound hard, but don’t underestimate the benefits of a Protected Trust Deed on your everyday life. No more phone calls or letters from creditors, and every payment is actually making progress towards clearing your debts rather than just going towards the growing interest and charges.
You’ll need to stick to a budget, which may seem difficult at first. And you’re unlikely to be able to access credit, so it’s important to consider bigger bills and expenses. But applying some effort into cutting your expenditure and living better financially means that you’ll not only be able to stay on course during your Trust Deed, but you’ll be more likely not to fall back into debt after it has ended.
If your income goes down during a Trust Deed, you need to talk to your trustee straight away. If it’s a temporary reduction, you may be able to reduce or stop payments for a short time. More permanent cuts in income could also be addressed by extending your Trust Deed, but it will depend on the reason for the change. If your only income is benefits, that can be accommodated in the short term, but it becomes a prolonged period, your Trust Deed may fail, and sequestration will be the next step.
You may be lucky enough to get a pay rise or come into a sudden windfall. It can be worth talking to your trustee about the possibility when you set up your Trust Deed, as different trustees will respond differently. Generally, you’ll be allowed to keep all of a small increase, but if it’s a more substantial or permanent amount, you may be expected that some or all of it is added into your Trust Deed payments.
If you receive a sudden lump sum of money, you need to inform your trustee so it can be used to pay your creditors. If it’s enough to cover everything owed, plus costs, then you’ll receive anything left over. If your windfall doesn’t meet the total owed, it can still benefit you by potentially reducing the duration or payment amounts.
What happens at the end of a Trust Deed?
A Trust Deed will usually end after four years, although it may be extended if you miss payments, or need to reduce the repayment amounts due to a change in circumstances. The first step is for you to be discharged, which will take a little time. Once that is recorded on the Register of Insolvencies, you’re no longer subject to the rules and restrictions of the Trust Deed.
Your Trustee will also need to discharge themselves when they finish working on your case. This can be quite a long time after your own discharge, but it won’t really affect you.
Although your Trust Deed will have ended after four years, it will remain on your credit history for six years from the commencement date.
Can you end a Trust Deed early?
It’s possible to secure an early discharge from a Trust Deed, ending it before the agreed period. But to do this, you’ll need to be able to settle the full debt amount, plus pay the fees and costs for your trustee.
As a result, you will probably only be able to end a Trust Deed early if you receive an unexpected windfall. If you come into an amount greater that the amount owed plus costs, then it will be used to pay everything off. And you will then receive anything left over from the initial amount.
Are you able to have multiple Trust Deeds?
You aren’t able to have multiple Trust Deeds in operation at the same time. But once you have been formally discharged from an agreement, there’s nothing to stop you applying for another Trust Deed in the future.
The acceptance criteria will be the same each time. And you can apply for a Trust Deed even if your last agreement failed, or if you’ve previously gone through sequestration.
Does a Trust Deed hurt my credit score? How long does it last?
If you’re considering a Trust Deed, it’s likely that your credit rating has already been lowered by missed or defaulted payments and accounts. This means clearing your debt problems will be better for your financial future than continuing to struggle financially, and potentially being forced into tougher debt enforcement.
When you enter into a Trust Deed it will be recorded on your credit file, and stays there for six years. This will negatively impact your score, but the effect will reduce over time, especially as you will hopefully be discharged successfully from your Trust Deed after four years without missing any payments, and with all remaining debts written off.
Although your credit rating will improve over time as the Trust Deed (and other negative financial information such as missed payments and defaults) automatically get taken off after six years, you may still find it more difficult to obtain credit soon after being discharged as lenders will look at your admission of apparent insolvency and details involved.
If you’re in a debt solution, or have just finished one, you should also check carefully when any credit is offered to you as the deals are likely to be far worse than those given to someone with a good credit rating. As a result, you might be better off improving your rating before applying for any future credit.
It’s important to check your credit history to ensure the details are correct and debts are marked as satisfied or settled when you have been discharged. You should also keep checking to ensure your debts and Trust Deed are removed after 6 years from the date of issue, and contact the three main credit reference agencies if the information is out of date. It’s not a responsibility of your Trustee to ensure your credit history is kept updated.
As much as it can be beneficial to have a good credit score if you’re looking to borrow money or purchase something on finance, the reality is that it’s much better to deal with your debts now, and then rebuild your credit score in the future.
Can you get a mortgage during, or after, a Trust Deed?
In theory it’s possible to obtain a mortgage during a Trust Deed. But in practice it will be extremely difficult. When you’re in a Trust Deed, any savings in your name will normally be paid to creditors, along with any lump sums or windfalls you receive. So that will make it hard to build up a deposit.
On top of the challenge to savings, you will also have a negative mark on your credit file, as mentioned in more detail above. This means that it’s much tougher to find someone willing to provide a mortgage, and any lender that does will be likely to charge a much higher rate of interest.
You will also need to get permission from your Trustee before accessing any additional credit. The one thing that can work in your favour is if mortgage payments are significantly less than any private rent you are currently paying, which means you can increase your Trust Deed payments as a result.
Getting a mortgage after a Trust Deed will become easier over time. For the first two years after you are discharged, the record will still be on your credit history. And you may also have negative impacts from any missed or defaulted payments. But these should be automatically removed after six years (and if not, you should contact the credit reference agencies to ensure they’re taken off).
Whenever you receive a negative mark against your credit rating, the impact will slowly reduce over time, and lenders will also take into account the fact you’ve successfully completed a trust dead. And by making regular payments, under utilizing credit and other methods of improving your credit score will help make better mortgage deals accessible after a Trust Deed.
Can you get car finance during, or after, a trust deed?
If you have a car on a finance plan or hire purchase when you enter into a Trust Deed, you will usually be able to keep it for reasons including commuting, living remotely, looking after children or caring for elderly relatives etc.
Getting car finance or borrowing for any motor vehicle during a Trust Deed will be difficult, and largely depend on your circumstances and reasons. You’ll need to inform your Trustee, who will decide if your request is reasonable.
To get car finance approved during a trust deed will means being able to show the reason you need the car, especially if it’s required for work (for example buying a cheap car for commuting, if your previous vehicle is beyond repair and public transport isn’t an option). And if you can cope with the payments within your income and expenditure.
While on a Trust Deed, you will find the available lenders and finance charge higher rates that if you had a good credit score. It’s important to check what the costs will be, rather than going on advertised rates.
As with mortgages and other credit, you may find it tricky to get car finance immediately after being discharged from a Trust Deed, especially if it will remain on your credit file for two more years. But you’re free to choose between taking the higher interest rate deals available, or waiting a little longer and getting a better deal when your credit score has improved.
Does a Trust Deed affect my employment?
The majority of jobs and careers aren’t affected by a new or existing Trust Deed. Most employers won’t even be aware of it, as they would have to randomly check the Register of Insolvencies.
Specific occupations which don’t allow you to be involved in any form of insolvency include the Police, the Fire Service, the Prison Service, and professions with a position or trust or a responsibility for handling money. The professional bodies representing solicitors and accountants also have specific rules regarding members and insolvency.
Typically, the rules regarding debt and specific careers will be included in your employment contract, and may also be available under eligibility requirements. If debt solutions are mentioned in your contract, or you think you may be affected, then it’s important to speak to HR representatives or Union reps before going ahead, and make sure you’ve followed any requirements for disclosure.
For the occupations which have financial vetting procedures, you may need to check whether the restrictions apply only when a Trust Deed or alternative debt solution is in place, or whether it will be a permanent barrier before you settle on the right repayment option.
Will a Trust Deed affect my partner or spouse?
If you don’t have joint debts, your partner or spouse will not be directly affected by a Trust Deed. It’s possibly that you could complete your arrangement without even letting them know about your debt issues if you wish.
Your spouse or partner will not be responsible for paying your debts, or directly involved in the agreement. And your creditors are forbidden from revealing details of the debt to them without your clear permission.
Obviously, there are many good reasons to avoid lying about debts or hiding them from your partner or spouse. Especially when your budget and spending will be restricted during your Trust Deed, along with the availability of more credit.
The situation does change if you have joint debts in both names. There’s no Joint Trust Deed available, but you can both enter into separate and individual arrangements as long as you maintain the eligibility criteria of £5,000 or more owed per person. An alternative is a Joint Debt Arrangement Scheme if you are both able to qualify as husband and wife (or living together as husband and wife), civil partners or living together in a same sex relationship with the characteristics of a husband and wife relationship.
Is a Trust Deed right for you? Next steps
Only you can decide whether a Trust Deed is right for you, and ideally that will be after some research and seeking expert debt advice. It’s one of a number of debt solutions available specifically for Scottish residents, and you should check the benefits and disadvantages of all of them before coming to a decision.
In the meantime, you should take steps to keep creditors informed and minimise how much they are chasing you for repayments. This can be done informally, or you can request a moratorium which prevents creditors from taking action against you while you consider applying for a Trust Deed, bankruptcy or a Debt Arrange Scheme. You’ll still be liable for debts, and it may affect your credit score.
To help you communicate more effectively with creditors whether or not you decide to apply for a moratorium, check out the DebtBuffer letter templates. These will also help you apply to be classified as a vulnerable person, which means creditors need to show more care and consideration in how they handle your debts. Reasons for vulnerability range from recent bereavements and relationship breakups to long-term or severe illness, or mental health issues.
Whether or not you decide to go ahead with a Trust Deed, or you opt for an alternative solution, the most important thing is to take back control of your situation. Not only can you get free or professional debt advice to help you choose the right way to get things back on track, but there are options available at pretty much every stage of the debt process to help you reduce the pressure and worry while you regain your financial freedom.
