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Trust Deed – ULTIMATE GUIDE (2023)

An Individual Voluntary Arrangement (IVA) in Scotland, also known as a Trust Deed, is a formal debt solution that allows people with unmanageable unsecured debts to negotiate a more manageable payment plan with creditors, often writing off remaining debts after a set period. Ready to discover more?

What is a Trust Deed?

A Trust Deed is a formal debt solution exclusively available to people who live in Scotland. If you have unmanageable unsecured debts that would take you a considerable amount of time to pay off, you might be able to use a Trust Deed to get out of debt. 

A Trust Deed can be either protected or unprotected. With a protected Trust Deed, creditors cannot take further action against you to recover the debt. It becomes a legally binding agreement for everyone with strict terms. 

On the other hand, if a Trust Deed is unprotected, creditors could veer away from the agreement to recover the debt with further action. 

For a Trust Deed to become protected, the majority of creditors need to agree to the agreement. 

Don’t worry, here’s what to do!

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out. 

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What does a Trust Deed do?

A Trust Deed is an agreement for the debtor to pay as much disposable income each month as possible, which is then divided between creditors based on how much each creditor is owed. 

It allows the debtor to make a monthly payment which is affordable to them, based on their real income and essential living expenses. 

During the course of the Trust Deed, your income or expenses could change. This will result in a Trust Deed amendment to increase or decrease your monthly payment. 

A Trust Deed lasts for a fixed amount of time and at the end of the Trust Deed, any remaining debt is written off.

What is a Trust Deed Insolvency Practitioner?

A Trust Deed can only be set up on your behalf and then managed by a licensed Insolvency Practitioner. 

This professional will assess your suitability to use a Trust Deed, make an application if you’re suitable and then manage the Trust Deed for its entirety. They’re also known as the trustee within the process. 

Some of your assets may be transferred into their name and could have to be sold to help clear some of the debt. When this happens it can be known as a security Trust Deed or an all-inclusive Trust Deed

How long does a Trust Deed last?

A typical Trust Deed will last for four years, equalling 48 monthly repayments overall. However, some Trust Deeds can last longer

Because any remaining debt will be written off at the end of the Trust Deed, you can get an idea of how much debt you will repay during the agreement and how much will be written off when it finishes. This will require the use of a Trust Deed calculator

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How much debt do I need to enter into a Trust Deed?

To qualify for a Trust Deed you’ll need to have at least £5,000 of unsecured debt with multiple creditors

At least half of your creditors will need to approve the Trust Deed proposal. For example, if you have four debts with four different creditors and two agree to the proposal the Trust Deed will go ahead. 

Alternatively, the Trust Deed can still be set up if a creditor or creditors you owe two-thirds of your debt agree to the Trust Deed. 

For example, you might owe one creditor £7,000 and two other creditors £1,500 each, totalling £10,000 of debt. If the creditor owed £7,000 approves the Trust Deed and the other two reject it, the Trust Deed will go ahead despite not getting a majority vote. 

Who qualifies for a Trust Deed?

There are several criteria you need to meet to be able to get a Trust Deed. The criteria for a Trust Deed include:

  1. You must live in Scotland
  2. You must have unsecured debts valued above £5,000
  3. You must have an income to help you make acceptable payments to the Trust Deed
  4. You cannot rely on state benefit payments as your income
  5. You might need to have assets, such as a vehicle or property

The reason you might need to have assets to use a Trust Deed is that they might need to be sold to help clear some of the debt, as per the Trust Deed rules

Can you apply for a Trust Deed online?

You don’t apply for a Trust Deed independently, but instead, use the services of an Insolvency Practitioner to make your application. 

You can often acquire these services online from debt management company websites. And the Insolvency Practitioner can make a Trust Deed application online on your behalf.

What are the advantages of a Trust Deed?

The main advantages of using a Trust Deed are:

  • Your debt repayments should become more affordable based on your circumstances and debts may be written off after the four-year period
  • After your Trust Deed is set up, creditors can no longer contact you or add further interest and charges to your debt
  • You can often keep one essential vehicle worth < £3,000
  • You do not have to appear in court as part of the application process

What are the disadvantages of a Trust Deed?

The main disadvantages of using a Trust Deed are:

  • The insolvency practitioner charges you for their service throughout the four years. This is taken from your single monthly payments
  • Trust Deeds can affect your right to work in some professions
  • Not sticking to the terms of your Trust Deed can lead to bankruptcy
  • Trust Deeds will negatively affect your credit report

Will a Trust Deed affect my partner?

In general, a Trust Deed won’t affect your partner. 

But the situation is a little more complicated when you have joint debts with your partner and you want to include the debt in your Trust Deed. We’ve discussed this in our special Trust Deed and partners post

How long does a Trust Deed stay on your credit file?

Although your Trust Deed might be completed after four years, it will stay on your credit file for six years from the date it was approved.

You can learn more about the effects of using a Trust Deed on your credit score with MoneyNerd.  

Is a Trust Deed a Good Idea?

A Trust Deed can be the best way for some people to deal with several unsecured debts. 

We help you work out if it’s a good idea in our dedicated post looking asking are Trust Deeds worthwhile

But make sure to get personalised help and advice from a debt charity. They can advise you to use a Trust Deed or not for free!

Trust Deed Companies

As mentioned at the start of our guide, a Trust Deed can only be set up by a licensed Insolvency Practitioner working on your behalf. These professionals usually work within debt management companies or specific Trust Deed companies. 

MoneyNerd can help you know what to look for and how to spot red flags when searching for the best Trust Deed companies in Scotland.

Can you sell your home with a Trust Deed?

It’s possible to sell a property while using a Trust Deed, but you will need permission from your trustee. Some of the sale proceeds may need to be paid to creditors. 

This situation can be complicated, so we dedicated an entire post to selling property while on a Trust Deed

Can you get a mortgage after a Trust Deed?

Yes, you can get a mortgage once your Trust Deed has ended. You might need to take the time to rebuild your credit score to get mortgage approval, or you could have to pay a higher rate of interest on the mortgage. 

How to get out of a Trust Deed

The only way to get out of a Trust Deed without paying it off is if your creditors agree for the Trust Deed to end, which is unlikely once it has been decided upon. 

If your Trust Deed fails because you cannot keep up with repayments, you could face sequestration. You might be able to avoid a failed Trust Deed by communicating with your trustee when you’re struggling to make repayments. They might be able to reduce your payments to ensure the agreement is affordable. 

Is a Trust Deed an IVA?

A Trust Deed is a debt solution exclusively available to people who live in Scotland, whereas an Individual Voluntary Arrangement (IVA) is a debt solution only available to people in England, Wales or Northern Ireland. A Trust Deed and IVA have many similarities, but they’re not the same! 

What’s the difference between a Trust Deed and Bankruptcy?

Bankruptcy and Trust Deeds are very different debt solutions. Bankruptcy should be the last resort for people who cannot otherwise get out of their debts, but it can still be the best option for some debtors. 

Our Trust Deed vs Bankruptcy guide explains the crucial differences between these options. 

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What’s the difference between a Trust Deed and a DAS?

A Trust Deed and DAS are two debt solutions that can only be used by people who live in Scotland. There are a few differences between a Trust Deed and DAS, but the main one is that a DAS won’t ever require you to release equity from property to pay back some of the debt. 

More Trust Deed help

Further help understanding Trust Deeds and how they work is available with MoneyNerd and debt charities. There are also a number of fantastic Trust Deed forums dedicated to discussing relevant topics and situations. 

Last but not least, don’t worry if a Trust Deed isn’t the right solution for you. There are plenty more ways to get out of debt, many of which are discussed on our debt solutions hub

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