How could a Trust Deed help me out of debt?

If you have a substantial amount of unsecured debt that you can’t afford to repay in a realistic time frame, you’ll need to find a suitable way of getting out of debt.

Having debts you’ve lost control of can be stressful for all kinds of reasons: the lack of financial security, the emotional difficulties, the frustration of not being on top of your financial situation – these are all common responses to debt problems which you may feel.

However, if you live in Scotland, there could be a suitable answer to debt problems – in the form of a Trust Deed.

Let’s look at how entering a Trust Deed could help you free yourself of your unsecured debts.

What is a Trust Deed?

A Trust Deed is a type of insolvency solution, exclusively available in Scotland.

A Trust Deed is designed to provide a way out of debt for people with significant unsecured debts (e.g. credit cards, personal loans, overdrafts) that they’ve fallen behind with – and can’t afford to pay back in a realistic period of time.

Once a Trust Deed has been agreed with your unsecured lenders, you will:

  • Make one payment per month you should be able to manage – as it’ll be calculated to be affordable after all your essential living costs have been covered
  • Be protected from any further legal action from those lenders
  • Have any remaining unsecured debt that you can’t afford to repay written off once the Trust Deed has ended successfully – in most cases, after 3 years.

How could you set a Trust Deed up?

Trust Deeds are available in Scotland – and require the assistance of a qualified Insolvency Practitioner (IP) to set up.

The IP – who is often an accountant or solicitor – will discuss your finances with you and, if a Trust Deed looks like your best option, draw up a Trust Deed proposal: a document showing your lenders how much you can afford to pay towards your debts.

The IP will then be responsible for sending this document to your various unsecured lenders for them to review. Unless more than half of your lenders – or those who represent a third of the total amount you owe – object to your Trust Deed, it will become protected by law, and you and your lenders must stick to all the agreed terms while it’s in progress.

Are there any downsides to a Trust Deed?

A note of your Trust Deed will be recorded on your credit file for six years from the day it begins – which is likely to make further borrowing difficult during this time.

Also, if you’re a homeowner, it’s likely you’ll have to release some equity so you can repay your lenders more of what you owe them.

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