Based in Scotland, drowning in debt and do not know how to swim your way to the surface? Unsure whether you will be able to get rid of your accumulated debt? It is possible that thoughts of having to sell your home or personal assets haunt you and keep you up at night. Maybe your creditors are threatening to take you to court if you fail to meet future payments.
Okay, now that we have captured your attention by painting such a bleak, solemn picture – we have some good news. Ever heard of a trust deed? These little magical financial instruments are going to be your saviours. Unfortunately, if you are not a resident of Scotland and based in Northern Ireland, Wales or England, then you may want to consider going for an Individual Voluntary Arrangement that serves a similar purpose.
If you’re ready to kick your feet and take strong swimming strokes to get you to break free to the surface, then read on.
What is a trust deed?
First things first, you need to comprehend the dynamics of a trust deed. What is a trust deed? In layman’s terms, a trust deed gives you a time out from having to make payments that you cannot afford at the current moment. An insolvency practitioner or trust deed counsellor will work diligently on your behalf to negotiate repayment terms with lenders and merge all your existing debt. Find out more about Trust Deeds.
What are the benefits of a trust deed?
Fiscal security in less than five years
Unlike other loan formats, your trust deed is valid for four years. After the trust deed period is over, you can start afresh.
Interest rate charges
Under a trust deed, as long as you live up to your end of the bargain by making your payments on time, you will not be liable for any kind of interest expenses that will accumulate from your unsecured debts. Even better, if you opt for a protected trust deed, any unsecured lenders who do not accept your trust deed will not be in a legal position to initiate any court action against you.
Disposable income is liable
Sure, you may not be entitled to take holidays to rejuvenate from all your year long hard work or work off frustration by exercising at your favourite gym, your trust deed budget will only take into account the cost of your living necessities. This includes but is not limited to mortgage or rent, transport, food bills, utility bills etc. Your trust deed advisor will appraise your income and cost minimum once a year.
Lenders won’t harass you
The lenders who accept your trust deed will not bother you once the trust deed is validated. Your trust deed advisor will manage all communication and contact from your unsecured lenders and disburse payment amidst them as per the conditions listed in your trust deed.
Keep on trading
If you are a sole trader or an entrepreneur, you can continue your business activities. If you are a director at the company, then you may require special permission. And unless your trust deed allows, you will not be able to raise extra credit.
What are the cons of a trust deed?
No more debt
If you take out additional lines or credit or engage in new loans, whilst under your trust deed, your new lenders will be able to hold you legally responsible for those new debts. It is evident that your trust deed will not protect you from any supplementary debt that you took on outside of the agreed upon terms and conditions.
Coverage of unsecured debts
As the title says, only unsecured loans are protected under a trust deed. If you have taken out loans against your property or through hire purchase agreements, then we are afraid mate that you’re on your own.
Impact on credit worthiness
Yes, a trust deed will have an impact on your credit rating scores. See, if you have missed previous payments on your debt and had no choice but to take on a trust deed, then your credit rating was already suffering. At least this way, you are safe from your lenders. As soon as you complete the trust deed and become free of debt, your credit rating will automatically begin to ameliorate.
Advertisements in local press
Heard of the Register of Insolvencies? It’s a public record where your trust deed will be published. It is possible that your social circle of friends, family or work colleagues could learn of your trust deed and hence your piled up debt. But, in our experience, people don’t really look up such random information, so you have nothing to worry about.
Remortgage or resell
Attaining a trust deed may require you to put your residence on the market and to sell it. However, if you can get protective terms against this in your trust deed, then you’re safe from having to take such drastic action.
In the event that you’re not able to keep your property safe, there is a chance that you could make extra payments to your trust deed in exchange for equity or resell your mortgage to a third party. Don’t worry, you will not be putting personal items such as your television, laptop or your car on the market as you’ll require them for work. However, if you invested in a fancy, high-end car, then chances are that you’ll be asked to sell it in order to pay off debt and get a smaller car. Another thing to keep in mind is that whatever pension contributions you are currently making – may be halted and diverted to paying off your current debts instead.
Have a serious think before you decide to engage in a trust deed. Do your research and talk to people. You can also always seek out professional advice – remember, you are entitled to it. In order to qualify for a trust deed, you’ll have to have been living in Scotland for a minimum of six months. Best of luck!