In Scotland, Trust Deeds are a formal type of debt solution that allows you to pay off a debt or debts with affordable monthly repayments, with the outstanding debt balance being written off once you’ve reached the end of your repayment term. While Trust Deeds generally last for four years, a longer period may be considered depending on one’s circumstances. In most cases, a trustee will act on behalf of the person in debt and pay their creditors with the payments they make each month.
Each type of debt management solution has its pros and cons, and Trust Deeds aren’t any different. As such, you must take the time to consider the advantages and disadvantages of a Trust Deed beforehand to ensure that it’s the right solution for you.
The main advantages of taking up a Trust Deed in Scotland include:
Fixed Payment Terms
As earlier mentioned, Trust Deeds generally last for four years, which means that you could become free of debt within a few years.
You Get to Pay What You Can Afford
The amount you pay is generally determined by your current financial situation and what you can afford to pay at the end of each month after you’ve settled all of your bills.
Your Debts Get Written Off
When you reach the end of your Trust Deed’s term and have met all of the set conditions and completed payments, your outstanding debt balance gets written off. This option allows you to “start afresh” a lot sooner than with a Debt Management Plan, which typically requires you to pay all of your debts in full.
It’s One of the Best Ways to Avoid Being Harassed by Creditors
Immediately your Trust Deed is protected, the person or entity acting as your Trustee will get in touch with your creditors and they’ll no longer be allowed (by law) to take legal action against you or request payment from you. Your creditors are given an 8 to 12 weeks allowance to update their records and ensure your Trust Deed Scotland reflects. If they continue to contact you once this period has ended, then make sure you inform your Trustee and have them handle the matter.
You Get to Keep Your Assets
Entering bankruptcy or sequestration means that you’ll, more often than not, have to sell some of your assets (your car, home, etc.) to offset your debts. The good thing about Trust Deeds is that you don’t have to sell your assets for you to settle your debts. While you could be asked to remortgage your house if it has equity, the thing is, you’ll never be told or forced to sell it.
There are No Hidden or Application Fees
Trust Fund Trustees are paid using the contributions you make each month. While there are providers who charge you for the costs of opening a Trust Deed if your application gets rejected, we’ll never do this.
No More Charges and Interest
Most people find it hard to pay off their debts due to the extra charges and high interests imposed on them; something that often leads to most people spiralling into serious debt. Once your Trust Deed is protected, all charges and interest stop – keeping your debt from accruing.
However, there are some risks to using a Trust Deed. They include:
Your Trust Deed May Fail to Attain Protected Status
For a Trust Deed to attain “protected” status, those you owe must first approve it, and there’s no guarantee that they will. For your Trust Deed to become protected, a majority of those you owe must accept the terms of your arrangement and for those objecting to own less than one-third of your debt.
You May Have to Remortgage or Sell Some of Your Assets
There’s a chance that some of your creditors will want to use any valuable assets you own for payment alongside the payments you make monthly. However, unlike bankruptcy and sequestration, you’ll not be asked or required to sell a property. Nevertheless, you may find yourself having to remortgage it so you can release its equity. If you own a car that’s worth more than £3000, you may be advised to trade it in for a cheaper model and put the profits you made into the Trust Deed – you’d never be left without a vehicle, however.
A Trust Deed Will Impact Your Credit Rating
Entering a Trust Deed will harm your credit rating since your name will be added on the Register of Insolvencies, and updated on your credit file. As a result, this may make it harder for you to borrow in the future. Fortunately, this is removed six years after the start of your Trust Deed.
Trust Deeds are Entered into a Public Register
In Scotland, Trust Deeds must, according to law, be recorded on an insolvency register that’s accessible by the public. However, this register is only generally used by lenders and financial professionals. Therefore, it is unlikely that your family or friends would ever find this out, except if they intentionally go searching for this information.
It Could Affect your Employment
Some professions and careers restrict whether or not one can use a Trust Deed to offset their debt with a good example being the Police. It’s also worth noting that you might not be able to serve as a company’s director while still in a Trust Deed. It is, therefore, a good idea to take a moment and find out if your employment contract has any terms and conditions regarding entering a Trust Deed.