Have you ever come across the term “Trust Deed” and wonder how it can help you catch up with debts and financial arrears?
In this article, we’ll cover everything you need to know about trust deeds, including how they are used, any advantages and disadvantages.
What Are Trust Deeds?
A Scottish trust deed is an agreement between lenders and debtors who are unable to pay off their balance in full.
The “compromise” is a win-win situation for both parties as it’s the creditor’s best interests to work with their clients to get some of their money back, while debtors can find a way to make a monthly payment that works within their income and budget.
The usual arrangements include setting aside a percentage of one’s income or releasing assets that they own. If accepted, a protected trust deed is formed and becomes legally binding to everyone involved.
Simply speaking, a trust deed involves the process of working with and revealing your assets to your debtor to pay off the balances owed. The agreement is usually a significantly lower monthly payment spread out over the course of several years. Part of the contract will stipulate that when you consistently pay off your dues for the duration of the agreed time, the lender will write off the remaining balance.
You may be wondering why lenders would agree to a trust deed and lose a percentage of the money owed to them. The reason? It’s one of the most effective collection and debt resolution tool around, and it’s widely used in Scotland year in and year out.
But a trust deed shouldn’t be taken lightly and used only as an alternative to bankruptcy. Lenders look at this debt solution tool as such and to get better returns for their investments.
When You Can Use A Trust Deed
Before you can be eligible for a trust deed, you will of course need to be a Scotland resident and have the capacity to put down a monthly payment.
If so, you can begin the process by contacting and appointing a trustee. Since a trust deed is a formal insolvency procedure, the agreement will have full legal standing. An IP, or insolvency practitioner must be on hand to witness the trust deed and its salient details.
The lender can make a commercial decision on which options allow the organisation to get the best returns for money that’s owed to them. A good IP will have the experience and knowledge to understand what credit card providers, banks and creditors look for in a fair proposal, and therefore have a higher chance of it getting approved and protected.
In a trust deed, the insolvency practitioner will act as the trustee as soon as the agreement begins. Trustees for their part won’t necessarily do all the work; they can assign a team to help with essential casework, work with the debtor and deliver suitable customer support.
Advantages of Using A Trust Deed
For the debtor, a trust deed allows them to take control of their financial state. You can start paying what you owe and it will count towards a debt-free status after fulfilling the contract. Moreover, the payment amount and timeframe will be agreeable according to your income.
For lenders, a trust deed gives them a percentage of their total owed money back, something that’s better than getting nothing when the debtor has no choice but to file for bankruptcy.
Potential Disadvantages of Using A Trust Deed
The debtor must ascertain with their insolvency practitioner whether the agreement can affect any of their assets, i.e., their car, house or any major assets they own. Homeowners and car owners may need to release their asset’s equity in order to better pay their debts as part of the proposal.
The debtor’s expenditure will become limited as soon as the contract takes effect. This is more of a guarantee that you’ll be able to continue making payments to erase the original debt. Moreover, your personal records will be put under the Register of Insolvencies, a register that’s under the umbrella of the Accountant in Bankruptcy.
Last but not the least, undertaking a trust deed will have an effect on your credit record, which is similar to that of filing for bankruptcy. Any previous trust deeds will have to be declared even if they’ve been removed from your record.
Your Ability to Obtain Credit in the Future
The debtor is immediately bound to the agreement as soon as the contract is established. You must be able to make the monthly payment throughout the term and will not be able to obtain additional credit until it’s finished.
It’s normal to not be able to obtain credit immediately after the contract is completed. Moreover, the debtor may find that it’s not as easy to obtain an open line of credit after they’ve been discharged from the trust deed contract.
What Other Alternative Methods Are Available?
Each debt situation can call for several resolution options, including bankruptcy or a debt arrangement scheme. People will often shy away from bankruptcy due to the stigma associated with it, while others prefer trust deeds over debt arrangement schemes as they can pay off the debt at a sooner time.
To find out the best debt solutions available for you, it helps to get professional advice from financial or debt management experts so you can proceed with confidence. Find out the pros and cons of each option and provider so you can make a sound, informed decision.