Considering a Protected Trust Deed Scotland(Scottish)? Weigh up these Pros and Cons First
Trust Deeds provide a promising alternative to Sequestration (the Scottish equivalent of bankruptcy) – the latter of which is undoubtedly the most disruptive of all debt solutions. But that’s not to say that Trust Deeds are entirely free from drawbacks.
Balancing the advantages with the disadvantages is critical when attempting to decide which debt solution may be right for your circumstances. So let’s begin with the pros of a Trust Deed.
The advantages of a Trust Deed as a debt solution
- A dead-set repayment period
Trust Deeds usually last for four years, within which time you could become free from your unsecured debts.
- You won’t have to pay any sneaky hidden fees or application charges
A Trust Deed involves monthly payments that are made to your Trust Deed provider, who then pays your creditors on your behalf. However, your insolvency practitioner will charge a fee for their services.
- Your repayments will be based on how much you can realistically afford to repay
Your Trust Deed provider will consider your income and expenditure, arriving at a figure that you’ll genuinely be able to afford after you’ve paid all your essential bills.
- Your debts are entirely written off
Following the completion of your Trust Deed, if you’ve met with the obligations of the Trust Deed, any debt that remains will be written off. This allows you to cut down the time it takes to repay your debts, as well as reducing the total amount you pay.
- Your creditors will stop harassing you
As soon as a Trust Deed is put in place the named creditors of the Trust Deed will no longer be allowed to contact you. Most debtors breathe a sigh of relief at the ceasing of the stressful phone calls, letters, emails and in-person visits.
If your creditors do need to communicate with you for any reason, they’ll contact your Trust Deed provider.
- You hold onto your assets
Unlike Sequestration or bankruptcy, you won’t need to sell your assets to meet with the terms of a Trust Deed. This means that you can hold onto your home, vehicle, jewellery and other high value items that would otherwise have been recovered.
Worried about debts that won't go away?
The disadvantages of a Trust Deed as a debt solution
- Your creditors may object to your repayment proposal
Before your Trust Deed enters so-called ‘protected’ status (which is when you are protected from your creditors taking legal action), your Trust Deed must first be approved.
There is a chance that your creditors may not vote for approval, however you only need the majority of your creditors to agree (75%), as well as any creditors who refuse to be responsible for less than one-third of the total amount owed.
- Your credit score will fall
As Trust Deeds are recorded in your credit history, your credit score will undoubtedly fall. This will make it more challenging to apply for credit. You’ll also need to take proactive steps to rebuild your credit after the Trust Deed is removed from your file (which happens 6 years after the Trust Deed commenced).
- Your job (and future jobs) may be affected
Some employers do not allow their staff to have used a Trust Deed, while others will have certain rules around what you can and cannot do in that business (such as being unable to serve as a director if you’ve previously has a Trust Deed).
To find out whether this may apply to you, you should read your employment contract to check whether any terms relate to Trust Deeds.
- You may need to apply for an equity-release loan on your property
While Trust Deeds never require property to be sold, your creditors may ask you to release equity from your home if it has sufficient value.
This could also apply to your other assets if they have enough equity (such as your car).