Could A Scottish Trust Deed Help You

If debt has taken over your life, a trust deed could be the ideal remedy. This debt solution gives you back control by repaying a fair amount over a realistic period of time.

A trust deed in Scotland is legal arrangement with your creditors. You pay an affordable amount for an agreed period of time. In return your creditors agree to write-off the debt still owed at the end.

It’s a formal personal insolvency procedure under Scottish law. An insolvency practitioner (known as your “trustee”) is appointed to arrange and manage your case.

If you’d like expert personal trust deed advice, please contact us. You can also ask questions in our online forum where a panel of industry experts provide information and guidance.

Qualification Criteria

The main qualification criteria for a trust deed are:

  1. Live in Scotland
  2. Owe at least £5,000 in qualifying debt
  3. Be able to afford a regular payment
  4. Receive some private income (not just income from benefits)

1 – Help dealing with your creditors.

Your trustee deals with creditors for you, reducing your stress and saving you time.

2 – Legal protection from your creditors.

With a protected trust deed in place, included creditors cannot take legal action against you.

3 – Make a single monthly payment.

You make one monthly payment to the trustee and they handle payment to your creditors. Your money is safe; it’s kept in a ring-fenced and insured client account.

4 – Debt write-off.

When you complete your Scottish trust deed, any included debt that remains unpaid cannot be recovered from you.

5 – Frozen interest and charges.

Your debt level doesn’t increase during your trust deed. Interest is only applied if you later become able to afford it; perhaps because you receive an inheritance for example.

6 – Protection of your home.

Equity in your home is treated more flexibly than it would be under bankruptcy.

7 – Keeping your car.

You’ll be able to keep a car (of moderate value) that you reasonably need.

8 – Allowances for your bills and expenses.

You’re given allowances to cover your essential household bills and other expenses.

9 – Flexibility.

If your personal situation changes, trust deed payments can be amended. Short-term payment holidays are possible if you suffer a financial emergency.

10 – Pension funds are protected.

Your money saved in an approved pension scheme is generally safe. Your trustee cannot force you to withdraw your pension funds (though the money would be at risk if you chose to withdraw it before getting discharged).

1 – Damage to your credit rating.

Your credit rating will be damaged and this will restrict your ability to obtain credit in the future. It may also affect the terms upon which future credit is offered. You can take steps to improve your credit rating once you’re discharged.

2 – Expenditure restrictions.

You’re required to pay what you can afford towards your debts, so your spending will be restricted. Your trustee decides the payment amount using standard expenditure guidelines. You’ll be allowed a modest level of saving which helps to cover irregular costs, such as car repairs.

3 – Equity in your home.

A check is made on any equity in your home before your protected trust deed begins. If there’s equity in your property, extra payment of some type may become due. The method of dealing with the equity is recorded in a written agreement.

4 – Cars and other vehicles.

If you need to use your vehicle you can usually keep it. If it’s worth £3,000 or more you may need to arrange some extra payment, such as a payment extension for example.

5 – Lump sums and windfalls.

If you receive a windfall such as money or property, you’ll have to pay it over. Common examples might include an inheritance, redundancy payment, or a pension lump sum.

6 – Falling into arrears.

When you stop paying your creditors directly, you will fall into arrears (or further into arrears). Interest and charges may continue to be added until your trust deed begins.

7 – Public records on the Register of Insolvencies.

Your personal details are listed on a public register. Find out more about searching the Register of Insolvencies here.

8 – Fees and costs.

Your trustee charges fees that are collected from your payments. A fee is charged to set-up your plan, which may be a fixed amount. The provider also charges to operate your plan, which may be a percentage of your payments. If your trust deed fails, fees are still taken from the money you’ve paid. Your creditors may receive little or nothing and you’ll remain liable for the money owed.

9 – Changes in your situation.

Changes to your financial situation could result in your payment increasing or decreasing. Examples include a change to your income, or a change to your household bills. If you cannot make payment your trust deed may fail and bankruptcy is possible. If you refuse to make payment, your trust deed could fail, your trustee could make you bankrupt, or they could secure payment directly from your employer (via a wage arrestment).

10 – Employment matters.

Certain types of employment may be affected by entering a personal insolvency process (see the employment section below for more information).

Your creditors are asked whether they’ll accept your trust deed proposals. If (after five weeks) your proposals are accepted, your trust deed now becomes a protected trust deed.

“Protection” means that your included creditors cannot use the courts to recover money from you.

Trustees know the acceptance criteria applied by the banks and other types of lenders. Protection isn’t guaranteed, but it is obtained in the great majority of cases.

If you cannot secure protection, you can choose a new way to deal with your debts (rather than continuing with an unprotected trust deed).

Setting up your Scottish trust deed will take a few weeks, which can be a worry if a creditor is trying to enforce a debt against you. Until your arrangement becomes a protected trust deed, you do not have legal protection from Sheriff Officers.

A moratorium stops your creditors from using enforcement action against you. This procedure currently provides six months of protection and can only be used once per year.

Your debt adviser can apply for a moratorium on your behalf, or you can apply yourself. Remember that your personal details will be published on the Register of Insolvencies, your credit rating may be affected, and your debt may increase due to added interest and charges.

You must include all qualifying debts that exist on the date of signing your trust deed. The majority of unsecured debts are covered by this debt solution:

Debts owed to family or friends have no special status and you will receive no extra allowance to keep repaying them.

Think carefully about any joint debts you owe. Your trust deed only protects you (it does not protect your joint borrower).

Debts that resulted from gambling are included. Your trustee might require you to supply evidence (like bank statements) to show that you have stopped gambling.

Secured debts such as mortgages and hire purchase agreements usually need to continue to be paid in order that the asset in question (ie your home/car etc) are not put at risk of repossession.  As long as they are reasonably required then your trustee is likely to allow the funds to be set aside in your budget to pay these.

Student loans aren’t included; you’ll remain liable for repayment.

Overpayments of social security are usually able to be included, though not if the overpayments have occurred as a result of fraud. Get direct personal advice if you have debts of this type.

Court fines cannot be included in a Trust Deed

A protected trust deed lasts for a minimum of four years by law, but a longer term may be suggested to help win creditor support.

Extra payments may be required in lieu of assets, such as equity in your home or a car worth more than £3,000. An extended payment term (beyond the four year minimum) is one way to deal with assets like these.

Your plan can be extended if you miss payments or if your monthly payment amount is reduced. It could be extended if you fail to disclose pay increases or a windfall you receive.

You won’t get discharged immediately when you make your final payment. Your trustee has some work to do to process your discharge (and later to process their own discharge).

An early discharge (before four years) can only happen if you have paid all of the following:

1. The total debt owed at the start

2. Interest on these debts

3. Your trustee’s fees and costs

This is most likely to happen if you receive a lump sum, such as an inheritance for example.

Most people can enter a personal insolvency process without any employment problems. Check your contract of employment for clauses about insolvency, bankruptcy, or “entering into arrangements with creditors”.

Some workers have special disclosure duties that employers impose for risk-control purposes. These duties may apply to police or prison officers, and to members of the armed forces.

Important extra considerations apply if you’re a company director or if you are self-employed.

Some types of professionals may be unable to use a Scottish trust deed without risking their job. Caution should be exercised by solicitors, accountants, bank employees, and others working the wider financial services sector. Other professionals should make checks with their employer and/or regulatory body.

Couples each enter into their own trust deed in Scotland because joint trust deeds don’t technically exist.

Couples can however benefit from a single set-up process, with both of you working with the same debt adviser to create a coordinated payment proposal.

You don’t have to act together and could instead each use a different debt solution. Acting separately could produce a better household outcome (even if you have joint debts).

Having used a protected trust deed before doesn’t prevent you from using this debt relief process again. You can also use this debt solution if you’ve been bankrupt previously.

Trustees understand people can get into debt again and the major creditors still use the same acceptance criteria.

Even if your last Scottish trust deed failed, you are still allowed to begin the process again. The only restriction is that you must be formally discharged from the previous agreement.

A trust deed in Scotland operates through four main stages:

Stage1 – Fact-Finding And Advice

You contact a debt adviser; they ask questions to get an understanding of your financial situation. They’ll ask you about your income, bills, debts, and any assets you own.

The adviser tells you which debt solutions you can use and explains the benefits and drawbacks of each. You can ask questions so that you can make an informed choice.

Stage 2 – Set-Up Process

You provide your adviser with documents such as bank statements, payslips, benefit award letters, and household bills.

This information verifies your recorded income and expenditure information, which is used to work out your monthly payment.

If you own assets, a written plan is drawn up explaining how (if at all) they’ll be dealt with. This is most common for homeowners.

You may be advised to open a new bank account.

Your trustee produces your formal trust deed document (which is unique to you rather than being a standard document). This document defines how your trust deed will operate, so read it carefully before you sign it and become legally committed.

Your personal details get added to the Register of Insolvencies and your trustee sends your payment proposals to your creditors.

Stage 3 – Reviews And Other Changes

Your provider will conduct periodic reviews, most likely on an annual basis.

You may be asked to provide bank statements and payslips to verify your updated income and expenditure.

Your trust deed payment may increase or decrease depending upon changes to your financial situation.

Don’t wait for your annual review if something changes. Contact your trustee if your income or household bills change significantly, or if you experience a financial emergency. Update them promptly if you receive (or become entitled to) money or property.

Stage 4 – Closure And Your Discharge

Your discharge works in two stages:

1. You get discharged and are no longer subject to the rules and restrictions. Your discharge is recorded on the Register of Insolvencies and you can take steps to improve your credit rating.

2. Your trustee discharges themselves when they have finished their work on your case. This could be a long time after your own discharge, but any delay shouldn’t affect you negatively.

Different firms have different requirements, but you’re likely to be asked for recent bank statements and payslips.

You may also be asked for household bills and/or benefit award letters.

If you’re self-employed you may need to prepare up-to-date accounts and provide recent tax return information.

For vehicles on hire purchase or lease agreements, prepare a copy of the finance agreement.

Homeowners should contact their mortgage lender for a “redemption statement”.

Your trustee needs to formally identify you. Prepare photo ID (like a passport or picture driver’s licence) and address ID (like a recent utility bill or bank statement).

Keep any creditor letters you receive as the account numbers and balances may be needed. This also helps to keep a track of debts that are transferred to debt collection agencies.

Your creditors will receive “dividends” from your protected trust deed (paid to them by your trustee). Interim dividends get paid during the plan and final dividends are paid at the end.

You should not pay your creditors directly.

There are several ways to deal with personal debts in Scotland. Scottish trust deeds aren’t available to everyone (and aren’t the best option for everyone).

A Debt Payment Programme under the Debt Arrangement Scheme is one option. It could provide you with extra time to fully repay your debts while your monthly payment is reduced to an affordable amount. Interest stops and you have legal protection from creditors. This option also offers some flexibility, like emergency payment breaks for example.

A Debt Management Plan could help you to fully repay your debts. It’s not guaranteed that interest will stop and no formal legal protection is granted. Your monthly payment is reduced to an affordable amount. This is a particularly flexible option.

Bankruptcy is used to deal with more serious debt problems. It operates in a similar way to a protected trust deed, but it might not be suitable for many homeowners. You can become bankrupt even if you cannot afford a monthly payment (unlike the other debt solutions).

It’s important to get expert debt advice. A Scottish trust deed might be right for you, but other debt solutions should also be carefully considered.

Providing debt advice is a regulated activity, so debt advisers must be authorised by the Financial Conduct Authority. Trust-Deed.co.uk is FCA authorised and regulated to give debt advice, as are many local advice centres like Citizens Advice.

Why is this so important? There are many unregulated “introducers” that might seem like debt advisers, but aren’t. They earn by selling your information to certain trustee firms, but may not be legally authorised to advise you about other useful debt management solutions. This leaves you at risk of mis-selling.

Some trustee firms aren’t FCA authorised, meaning that they also cannot advise you about other debt management solutions. For reliable expert debt advice, always choose an FCA regulated debt adviser.

Personal insolvency processes in Scotland are overseen by the Accountant in Bankruptcy. They provide useful information on their website (but aren’t a direct debt advice provider).

A Scottish trust deed isn’t a simple “product” so what you get depends upon which firm you choose. Some firms have very high case failure rates, which leave people facing their creditors directly again.

Some firms have a reputation for providing poor service, which is a worry if they’re supervising your personal finances for at least four years.

Our partner trustee firms have carefully helped and supported Trust-Deed.co.uk visitors for years. Read more about these firms in the profile pages for Kevin Mapstone and Paul McDougall.

You can contact us for Scottish trust deed advice; our friendly expert advisers are here to assist you. Any contact with us is confidential and you’ll be talking to a fully qualified debt adviser.

You can also ask questions in our trust deed forum where experts from a panel of insolvency firms are available to answer your questions.

Contact the experts

Kevin Mapstone

Trust Deed Expert

Paul McDougall

Trust Deed Expert