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Failed Trust Deed – What You Can Do, FAQs & Tips

Failed Trust Deed

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Trust deeds are a great debt solution for individuals in Scotland that are struggling with debt. 

That being said, they require careful planning and budgeting. If you don’t manage your finances well when you’re in a trust deed, you can risk it failing. 

In today’s post, I’ll be looking at how trust deeds fail and what you can do if this happens to you.

What if My Protected Trust Deed fails?

If you don’t manage your trust deed well enough, it will fail. 

Typically, this happens when you miss too many monthly payments towards your trust deed and your trustee isn’t confident in your ability to make your repayments. 

As a result, he/she chooses to terminate your trust deed

If this happens, then: 

  • Your creditors won’t be legally bound by the terms of your trust deed anymore. Hence, they will be able to get in touch with you as well as take legal action(s) against you
  • A few examples of legal action that your creditors could take against you include sequestration, wage arrestment or another court order
  • Not only that but there’s a chance that your trustee may even petition for your sequestration in court as well
  • The interest and charges on your debt(s) will become unfrozen 
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The alternatives to a Trust Deed in Scotland

Debt Arrangement Scheme

With a Debt Arrangement Scheme, you reimburse your debt through what’s known as a debt payment program (DPP). When approved for a Debt Arrangement Scheme, you focus on the Debt Payment Program (DPP) through which you will repay what you owe in standard monthly instalments. 

The amount of money you pay in your monthly payments will depend on what your surplus income is. Your surplus income can be found by subtracting your essential monthly expenditure from your monthly income. You can do this on your own or by filling out an income and expenditure form. This is the amount of money that you’ll pay towards your debt arrangement scheme each month. 

Please note that unlike trust deeds, when it comes to a debt arrangement scheme, you have to repay the entirety of your debt. No portion of your debt is written off as part of this debt solution. 

Through a Debt Arrangement Scheme, you will be protected from your creditors from taking any action against you to recover their debts. 

When a debt arrangement scheme is accepted and put into place, all interest and charges on your debts are frozen

Please note that Debt Arrangement Schemes freeze interest, expenses, and charges from the date you apply for your Debt Payment Program. 

Minimal Asset Process

Minimal Asset Process (MAP) is a process of applying for bankruptcy that is typically suited for individuals that have low income and little to no assets. 

It allows you to write off debt that you would otherwise have difficulty repaying within a reasonable time. 

MAP can be considered to be the Scottish equivalent of a Debt Relief Order (DRO) in England, Wales or Northern Ireland. 

It will protect you from your creditors. Your creditors will not be able to pursue any type of legal action against you while your MAP is in place.

You can apply for MAP bankruptcy if: 

  • You’re a resident of Scotland or have lived in Scotland in the past 12 months
  • Your debts total up to more than £1,500 but less than £25,000 (this limited used to be £17,000 but it has been increased until at least March 2021) 
  • You have no car or have a car that is worth less than £3,000
  • Other assets that you have are worth less than a total of £2,000 with no single asset being worth more than £1,000
  • You don’t own a home
  • You have not gone through sequestration (the Scottish equivalent to bankruptcy) in the past five years.

Sequestration

Sequestration is a form of formal insolvency that can be suitable for debtors that cannot afford to pay back their debts within a reasonable time. 

Sequestration can be seen as the Scottish equivalent to bankruptcy. 

It would involve your debts being entirely written off but it would not be without the seizure of your valuable assets. 

In order to apply for sequestration, you’re going to need to owe more than £3,000, be a resident of Scotland and you must not have been made bankrupt in the past 5 years. 

Sequestration typically lasts a year. During this time, you are not allowed to obtain credit of any kind without declaring that you’re bankrupt. Furthermore, you need to keep the Accountant in Bankruptcy (AiB) informed of your situation. 

It’s also important to note that since this is a formal debt solution, your name and details will be entered into the Register of Insolvencies. These details will stay there for a period of five years.

While sequestration does involve most of your unsecured debts being written off, it has a lot of risks which you need to be aware of.

For example, if you have a lot of valuable assets that you don’t want to lose, then you should definitely look towards other debt solutions. This is because sequestration is one of those debt solutions that would involve assets such as your house or car, etc. being sold off in order to raise money. 

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Can you cancel your Trust Deed once it has been set up?

You cannot cancel a protected trust deed as it is a legally binding agreement between you and your creditors. 

If you’re having trouble making your monthly payments or if you feel you’re going to have trouble making your upcoming monthly payment, you should talk to your trustee (advisor). 

Please note that trust deeds are designed to facilitate you, the debtor. If your circumstances have changed for the worse and you can’t make your payments, your advisor might be able to get you a payment break. In other cases, they might be able to get you reduced monthly payments. 

Please note that it’s the duty of the trustee to negotiate with your creditors to ensure you’re only paying what you can afford. If your financial circumstances worsen, your trustee will negotiate with creditors to either get you a payment break or reduce your monthly payments as soon as possible. 

Always talk to your trustee for debt advice regarding your trust deed before assuming that your protected trust deed is going to fail. 

Conclusion

While trust deeds can definitely fail, they won’t if you budget carefully and take necessary precautions when managing your debts. 

If you feel you’re going to have trouble making your payments, get in touch with your advisor immediately.

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