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In Scotland, the laws regarding debt and insolvency are slightly different to those in the rest of the UK. In Scotland, Bankruptcy is known as Sequestration and the alternative to this is known as a Protected Trust Deed.
A Trust Deed is an agreement between you and your creditors where you make reduced payments towards your unsecured debts over a four year period.
At the end of this period the remainder of your debt is written off. As Trust Deeds are a form of insolvency, your unsecured debts have to exceed your assets.
You can apply for a Trust Deed if you owe as little as £5,000 and can afford a monthly repayment of £100.
We would review your financial circumstances and if a Trust Deed is the most suitable solution, we would collect all the necessary documents from you and appoint an Insolvency Practitioner (IP) who specialises in dealing with Trust Deeds. The IP will be known as your ‘Trustee’.
Your Trustee then prepares your proposal and presents it to your creditors. Provided that there is no significant opposition to the proposal then your Trust Deed would become ‘Protected’. Once your Trust Deed is Protected, your creditors cannot chase you for payment or add any interest or charges to your debts. They are also unable to take any court action against you.
You need the help of a Licenced Practitioner (known as an “IP”). The IP has an important role to play. They put your proposal to your creditors and have to take both your creditors and your best interests into account. The proposal they compile covers their recommendations on your TD and also advises on your suitability. Assuming everything goes to plan there are a few steps in the proposal:-
A TD is a debt solution available to Scottish residents only. It’s a legally binding contract between you and your unsecured creditors. The terms of the proposal are tailored to your own personal circumstances. Under the rules and regulations of the Act the arrangement binds all creditors. If the creditors do not object to your proposal, the TD will be implemented and protected.
Your creditors would normally expect you to pay your ‘Disposable Income’ (What you have left after you have paid all your essential living costs) into the scheme. Any additional overtime and bonus may also be taken into consideration depending on earned amounts. The creditors would request that you pay as much as you a can reasonably afford each month.
As long as you fulfil the proposal none of the creditors included in the arrangement can commence or continue legal proceedings. Provided you maintain the payments you are legally protected against any further recovery action or additional monies being added to your debt.
Assurances may be agreed to protect your home. Homeowners may be required to contribute some of the equity in their property, but it is unlikely you would ever be forced to sell your home in a TD.
As long as the proposals have been successfully maintained any unsecured debt which was included in the TD is written off. Those creditors in question have no further claim against you.
A TD is beneficial if you don’t have sufficient income left over after your bills are paid, when creditors are applying too much pressure and/or when it would take you an unacceptably long time to repay your debts. Those who have embarked on the scheme say it’s one of the best things is that they have a finishing line as the term is fixed (usually 4 years). Other advantages of the scheme are:
To have a successful TD it needs commitment and desire to see it through.
If you are considering an TD then you will be facing financial difficulties. In many cases the benefits far outweigh any other alternatives to you.
A TD can produce better returns to your creditors than alternative arrangements such as Sequestration and your proposal should demonstrate this.
Any fees associated with the TD will come directly from the monthly payments that you make. This will be laid out in your proposal before you are committed to the process. Below is a typical example of fees for a client who owes £20,000 in unsecured debts.
Monthly Repayment: £200
Trustee Fee (Supervisor): £ Variable
Trustee Disbursements: £ Variable
Total repaid by individual (including fees above): £9,600
Total unsecured debt written off on completion: £10,400
If you can’t maintain the payments then the arrangement is usually declared to be in breach. Depending on the type of breach you may lose some of the protection given to you by the TD. If your circumstances do change, your IP may be able to apply to your creditors to vary the term of the arrangement to prevent it from failing.
Experience shows that people are often able to obtain credit once their debt problem has been dealt with, but this will obviously depend on the lender you apply to. Having successfully completed a TD will undoubtedly stand you in a better position than you would be in if you had been Sequestrated or not dealt with the debt problem at all.