Welcome to the forum deriq.

You're doing the right thing researching the implications for your property, this should be a high-priority topic for any homeowner considering how to tackle their debts.

Is your home jointly owned?

You may wish to read the following page which contains specific information about trust deeds and home ownership:

https://www.trust-deed.co.uk/equity-homeowner-house.html

Hi thanks for getting back to me, no the home and remaining mortgageare both in my name.

Hi deriq

As your equity is so high, higher than your debt level, then an insolvency procedure such as a Trust Deed would normally not be possible.

Having said that, it is technically possible to sign a Trust Deed where your home is formally excluded from it. The problem may be getting such a proposal accepted by your creditors - though there is nothing to stop you trying, especially if there is a good argument for taking your home out of the equation (I'm thinking the fact that it is partly your business too). What type of business is it that you have?

A debt arrangement scheme (DAS) payment plan may be more suitable. This involves paying your debts off in full but with interest and charges frozen and protection from creditor action. Again, this is subject to creditor approval, with the rule of thumb being that you are likely to have to be able to afford to repay your debts within 10 years in order to have a reasonable chance of getting such a plan agreed.

Have you looked into the possibility of remortgaging, deriq?

Hi Thanks for getting back to me, My business is a small antique shop which we made out of what used to be part of next door. We bought two adjacent properties and turned one into a larger house and one into a shop, the two are joined by a door and share an electricity supply. I make a modest part time living out of it, my partner is full time self employed too so our joint income is only about 11k a year. By my calculations 35k over 10 years would be £300 pcm, we could just about afford that, but our income is so low and our unsecured debts so high that I would doubt any further borrowing would be possible.

Hi deriq.

It does seem like it might be worthwhile looking into DAS a little more given your comments.

There's more information about how it works here which might be useful if you haven't read it yet:

https://www.trust-deed.co.uk/debt-arrangement-scheme.html

I think Trust Deed Assistant is right. Quite apart from the issue of equity in your property, a further complication with a Trust Deed would be that the value of you business (stock etc) would have to be assessed and potentially gathered in for the benefit of creditors too.

DAS is a lot more straightforward if affordable, though unfortunately much longer term too.

Many thanks for your replies, I had a long phone conversation with an advisor yesterday and he was 100% sure that a trust deed would be the way for me to go! (Just when I was thinking a DAS!) He seemed to think that a couple of years extension to a deed would be acceptable and also that if I were to sell my home during the period of the deed (with the trustees permission) that this would be pretty straightforward, I would pay 8% interest and trustees fees and settle the remaining debt from my released equity? Is this likely to be acceptable to my creditors? Luckily my debts are all unsecured and pretty evenly spread over 5 creditors, to none of which I owe more than 1/3 of my debt. I have read elsewhere that you cannot sell during the term of a deed and in other places that you can?

Hi deriq.

Can I ask why selling your home during a trust deed is on your mind?

Presumably you could just do that now if you wanted to without entering a trust deed, without any further interest, and without any trustee fees being due?

Hi deriq,

Do you know if the advisor you spoke with was a qualified Insolvency Expert? It sounds to me like they are not up to date with the current guidance regarding equity rich Trust Deeds.

It’s not as simple as how they have explained it to you and by entering into a Trust Deed with that level of equity you would be placing serious risk against your house.

On the 29th November 2016 the Accountant in Bankruptcy (Scottish Government Department responsible for overseeing the administration of Trust Deeds) issued a letter to all companies advising them how a Trust Deed with substantial equity must be treated.

The letter confirmed the following for all Trust Deed’s that have a large amount of equity signed after the 5 January 2017:

For any Trust Deeds signed on or after the 5 Jan 2017, where the Trustee does not propose to realise the equity in full, the AIB will not grant protected status where the notes box on Form 3 fails to provide such a relevant justification. Rather, such Trust Deeds will be returned to allow an explanation to be provided.

In order to satisfy the requirement, the following information should be included in the Form 3:

1. The % of equity that is planned to be realised in the Trust Deed
2. Details of the exceptional circumstances of the case to explain why it is not appropriate to realise the full equity value.
3. In cases where the debtor will make additional contributions in lieu of equity, the factors considered in fixing the duration of the additional contribution period
4. Where the trustee has investigated a re-mortgage has not proved feasible, relevant details should be explained including calculations; and
5. Confirmation that it has not been possible to arrange a third party buy-out to realise the equity.

It is the Accountants view that the individual circumstances of the case, so a standard form of words is unlikely to be sufficient. To be clear, the AIB at this stage is not refusing to give protection to such trust deeds because of the nature of the arrangement proposed. Rather the issue is to ensure full transparency for creditors in assessing what is put before them.

What this ultimately means in layman’s terms is that it’s not as simple as just extending your payments for a couple of years and that’s it.

I would proceed with extreme caution as one you sign a Trust Deed it’s extremely difficult to reverse this process and ultimately the worst case scenario is that you could lose your house and a vast amount of any equity you may be expecting back.

I support what others have said in that I believe a DAS to be the most suitable option.

Phew! Well thanks TDA! - selling is not on my mind (for family health reasons); however I am cognisant that things change and I want to always be as future proof as possible; also slightly confused by conflicting reports that selling is or is not possible[?]
And to David Tannock - Many thanks for such a comprehensive response, brilliant answer! However So many questions now arise!

1. The % of equity that is planned to be realised in the Trust Deed

- How much does that need to be?

2. Details of the exceptional circumstances of the case to explain why it is not appropriate to realise the full equity value.

- My equity is considerably more than my debt, can I be forced to sell my property/family home + business (and consequently my income) to pay off unsecured debts?

3. In cases where the debtor will make additional contributions in lieu of equity, the factors considered in fixing the duration of the additional contribution period

- [?] Like what I can afford? How long can the additional period actually stretch to?

4. Where the trustee has investigated a re-mortgage has not proved feasible, relevant details should be explained including calculations;

- No re-mortgage possible due to fall in income. I could apply for one and present rejections quite easily probably.

5. Confirmation that it has not been possible to arrange a third party buy-out to realise the equity.

- Does that mean that I would have to show that I cannot sell my property? I don't want to sell my property/family home & business - would I have to? The advisor that I spoke to was quite positive about the ability of a trust deed to protect my equity? What exactly is the worst case scenario you speak of where I risk losing my house and equity?
Sorry for all the questions, I really appreciate your gift of time and help in this matter!

The rule is basically that as much equity should be realised as is possible. There is no acceptable percentage as such, other than 100%.

If sufficient justification can be put forward to justify why only a lower amount of the equity is being proposed to be gathered in, and sufficient creditors do not object to the proposals, then it may be possible for you to set up a Protected Trust Deed on these terms.

The problem for you is that The Accountant in Bankruptcy seems to have hardened their stance on these types of scenarios - they are looking for reasons as to why a case is "exceptional" before they will agree to grant protection to such Trust Deeds. Perhaps the firm you have been speaking to will be able to convince them that your circumstances are exceptional, or perhaps not. The guidelines David set out are quite recent and it is difficult to know what the Accountant in Bankruptcy's attitude will be in practice. I certainly wouldn't share your adviser's confidence, however.

Did you discuss the issue of your business and its value with the adviser you spoke to?

Many thanks Kevin, I had a look at the AiB website and saw this -
"you may request that your home be excluded from the trust deed, if your secured lender agrees to this. If your creditors do not object to the protection of your trust deed then you will keep control of the equity in your home. The rest of your assets pass to your trustee as normal, this includes any new assets you acquire during the term of your trust deed;
if you do not succeed in having your trust deed protected, your creditors may be able to make you bankrupt;"

Scary stuff! Does that effectively mean that if I apply for a protected trust deed and my creditors object (perhaps because I have equity)that they have the power to bankrupt me?

Do creditors tend to object to trust deeds being protected? I have read that some are worse than others?

I told the advisor that my business was part of my house, my business assets are minimal as I sell stock that belongs to other dealers.

Hi deriq,

Along with Kevin I don’t share the confidence that the advisor you spoke with has regarding a possible Trust Deed for you. You could find that once that advisor passes your file to someone more senior or actually the company that will handle your Trust Deed it turns out the cannot offer you a Trust Deed.

I would urge you to proceed with extreme caution regarding a Trust Deed as once you sign it, it can be very difficult go get back out and you are effectively signing over any assets you have to a Trustee. This will place significant risk to your property.

Let’s say for example you proceed with a Trust Deed and it’s agreed and then 3 years into it you are unable to continue with the payments due to a change in circumstances then your Trustee may have no option but to consider the sale of your house. They would repay your total debts (minus any payments paid) plus statutory interest at 8% per annum plus any addition administration costs that the Trustee has which could be thousands of pounds. That is a lot of money.

On a DAS, if your circumstances changed then there is nothing that will risk you property in the immediate term (I’m thinking if you couldn’t afford the mortgage) and you can’t be forced to sell your house as a result of the DAS unlike in a Trust Deed where you lose an element of control. If you choose to sell your house to pay your debts then you would control the sale and all you would pay is your debt.

These are all of the things that a good qualified expert should take the time to explain to you and I get the feeling that the advisor you spoke with hasn’t done that and only told you about the positive aspects.

If you do decide to proceed with a Trust Deed please ensure that you receive absolutely everything in writing regarding how your Trust Deed will work, the risk to your property and what would happen if you could not sustain the payments or if the creditors or AIB rejected the proposal.

Let me be clear though, in my professional opinion based on what you have told us regarding the level of your debt, your financial circumstances and more importantly the level of equity I do not think a Trust Deed is the most appropriate solution. I think a DAS would be more appropriate.

I’m not trying to sound negative but I would rather be honest and point out the real serious consequences of a Trust Deed.

Many thanks David, I would be much more comfortable with a DAS, a trust deed looks less appropriate for my circumstances the more I read about it.