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Monday, 27th April 2009
The Scottish alternative to an IVA (Individual Voluntary Arrangement). It is a similar principle, but the procedures are totally different.
A Trust Deed is a document dealing with an individual’s financial affairs and is overseen by a Licensed Insolvency Practitioner - ‘the Trustee’.
The Trustee acts as an honest broker between the debtor and his/her creditors to ensure the proposal being drafted is both realistic and fair to all parties concerned.
Once completed, the debtor will receive a draft copy of the proposal for his/her approval. Any necessary alterations are then made before the Trustee sends a copy of the Trust Deed to each creditor.
What is a Protected Trust Deed?
When a Trust Deed is accepted by creditors it becomes 'protected'. This means creditors must stop further interest from accruing on the debts. At the end of the Trust Deed, as long as the debtor has adhered to all terms & payments, his/her debts are considered to be settled in full.
When would I consider proposing a Trust Deed?
How long does a Trust Deed last?
Discharge is normally granted after all contributions have been made. Most contribution periods are 48 months (4 years).
Do I pay my creditors in full?
A Trust Deed is an agreement between you and your creditors for repayment of a specific amount of your debt. The Trustee will work out the value of your available assets or an agreed monthly contribution and make a proposal on your behalf to repay creditors. The return to creditors can vary from as little 10p in the pound to payment in full.
How do creditors accept or reject my Trust Deed?
The Trustee publishes a notice in the Register of Insolvencies and writes to all the creditors advising them that the Trust Deed is to become ‘protected’. From the date of notification, creditors have a period of 5 weeks to accept or reject your proposal. If the Trustee receives more than 50% of creditors objecting in writing or one third in monetary value objecting, then the proposal will fail; but this is uncommon.
Once approved, all creditors included in the proposal are bound by the Trust Deed and any creditors (including any that did not vote) cannot carry out any action against you for recovery of any debts.
What if I have joint debts with a partner?
As with an IVA, Trust Deed deals only with one individual’s liabilities. If there are joint liabilities with another person, then your creditors have the option of pursuing the other party for the remaining balance or full amount. This will not happen if the other person also successfully proposes a Trust Deed.
What happens to the interest on the liabilities?
Once a Trust Deed is accepted by creditors it becomes 'protected'. This means creditors have no alternative but to stop any further interest from accruing on their outstanding debts. Providing the debtor keeps to the terms of their Trust Deed then their debts will be considered settled in full when it has finished.
Is there a certain amount I have to owe before I can propose a Trust Deed?
The minimum amount of debt is £5,000. There is no maximum.
What happens to my assets?
If it is a protected Trust Deed, then property which is conveyed to the Trustee may be sold for the benefit of your creditors. However there are other options which will be discussed with you in full prior to signing.
What will happen to my house?
The Trustee can sell all property which has been conveyed to him by the Trust Deed, however this is quite rare. Also if your house is jointly owned or if it is a family home, the Trustee will need to communicate with the co-owner or anyone else that has occupancy rights in the house.
When the Protected Trust has ended do I get my property back?
Once you have conveyed assets to your Trustee, they become under his/her duty to realise them for the benefit of your creditors. The Trust Deed continues to operate after your own discharge as long as there are assets for the Trustee to manage or 'realise'. Properties do not however need to be sold, if a satisfactorily arrangement is made with your Trustee you will be able to keep your property.
What could happen if I do not co-operate with the Trustee?
The Trustee can petition for your sequestration (Scottish equivalent of bankruptcy). The Trustee can also petition for your sequestration if he considers that would be in the better interests of your creditors, for example, by obtaining the greater statutory powers available to a trustee in sequestration. This is rare.
What if I do not have any assets?
Providing you are prepared to pay a proportion of your earnings to the Trustee, you can still propose a Trust Deed but it must however be beneficial to your creditors.
What are the Advantages and Disadvantages of a Trust Deed?
Trust Deed Fees
As part of the process of setting up a Protected Trust Deed your income and expenditure will be assessed. This will help establish what you can afford to pay your creditors each month into the arrangement, this is carried out to ensure that you can afford the contributions which will give your arrangement the best possible chance of success.
You should not pay up front fees to begin the PTD process. Fees vary and are built into the regular monthly payments i.e. you do not pay a separate fee, this is included in the amount you can reasonably afford. A schedule showing the level of fees to be charged in a PTD is included within the PTD proposal for you and your creditors to see.
Can DebtWizard help decide if a Trust Deed is right for me?
Alternatively click on the following link to get details of other free debt advice organisations, including debt charities.
Take me to free debt advice agencies.