What is a trust deed?
A trust deed is a formal debt solution intended to take away the stress of multiple and/or unmanageable debt payments to by combining these debts into a single regular payment.
It can offer protection from creditor legal action and protect repossession of assets, including your home. Trust deeds can be voluntary, but it is only when it becomes protected that you are offered these kinds of legal safeguards and they become binding on creditors
Voluntary and protected trust deed
Voluntary trust deed
A voluntary trust deed is an agreement made between a debtor and their creditors to repay part or all of what they owe. A trust deed transfers the debtor’s rights to the things they own to a trustee who will sell them to pay creditors part of what is owed to them. A trust deed will normally include a contribution from income for a set period. This is usually 48 months, but can vary. A voluntary trust deed is not binding on creditors unless they agree to its terms, which means it then becomes protected. Trust deeds should only be agreed if there is an intention to have the terms presented to creditors for protection
Protected trust deed
A protected trust deed is a special kind of trust deed that is binding on all creditors. Provided the debtor complies with the terms of their protected trust deed, creditors can take no further action to pursue the debt or to make the debtor bankrupt. A protected trust deed prevents the debtor from applying for their own bankruptcy or take part in the Debt Arrangement Scheme. If a debtor acquires any new debts after they sign the trust deed, they will not be protected from action by their new creditors. There is a £5,000 minimum level of debt before a trust deed can become protected.
Consequences of signing a trust deed
Signing a trust deed is a serious step and debtors need to understand what they are signing and the responsibilities they are undertaking.
Before a debtor signs, a trustee must:
Give advice about the conditions and consequences of signing a trust deed
Must tell them about the all alternatives to a trust deed including bankruptcy and DAS
Give the debtor a copy of the Scottish Government's Debt Advice and Information Package
The appointed trustee will also charge a fixed administration fee and an additional fee based on a percentage of funds collected during the trust deed for the work they do in administering the trust deed. The trustee must give the debtor an indication of what they will charge before the trust deed is signed. The debtor also needs to be aware that a protected trust deed is likely to affect a debtor's credit rating and may prevent them from doing some jobs. If the trust deed fails to become protected, creditors may be able to apply to declare the debtor bankrupt.
Access to trust deeds
You can obtain free, impartial advice on the options available to you from Citizens Advice Scotland, Money Advice Scotland or local authority money advisers. A solicitor or insolvency practitioner can also offer financial advice but may charge for their service.
To find a local money adviser in your area, go to the Further Advice page. The appointed trustee in a trust deed must be a qualified insolvency practitioner. Insolvency practitioners are regulated by law and must be members of an approved governing body. Independent insolvency practitioners’ fees are at their own and their licensing authority's discretion.
During your trust deed, you must:
- Make agreed payments
- Co-operate with your trustee
A trust deed will normally last for 48 months.
Trust deed conditions
Under a trust deed, there are a number of conditions a debtor must adhere to:
- A voluntary trust deed is not binding on creditors unless they agree to its terms and it becomes protected
- Trust deeds should only be agreed if there is an intention to have the terms presented to creditors for protection
- Secured creditors may still take action to take possession of a debtor’s home if they fall behind with mortgage payments
- A protected trust deed prevents a debtor from applying for their own bankruptcy or for a debt payment programme under the Debt Arrangement Scheme
- If any new debts are taken on after a trust deed is signed, the debtor will not be protected from legal action by these new creditors
- A debtor can choose who their trustee will be, and the trustee will charge for the work they do. A trustee will set out a fixed administration fee and an additional fee based on a percentage of the funds collected during the trust deed. These fees will be recovered from money gathered by the trustee during the trust deed and should not be paid separately
- After signing a trust deed, a trustee will prepare a notice for publication in the Register of Insolvencies. This is a public record which anyone can access and means the trust deed will come to the notice of organisations like banks and credit reference agencies
- A debtor can request their home is excluded from the trust deed, should the secured lender agree. If creditors do not object to the protection of the trust deed, the debtor will keep control of the equity in their home. The rest of the debtor’s assets pass to the trustee as normal, including any new assets acquired during the term of the trust deed
- If a trust deed is unsuccessful in becoming protected, creditors may be able to make the debtor bankrupt
- At the end of the trust deed, the debtor will be discharged from all their trust deed debts, providing the trustee considers they have met their obligations
- The trustee will apply to AiB for the debtor’s discharge, and on granting, creditors will not be able to pursue money owed to them prior to the signing of the trust deed. The debtor’s discharge will be recorded in the Register of Insolvencies
If you sign a protected trust deed, it will affect your credit rating and could also prevent you from doing some jobs. Should you fail to comply with any of your obligations under a trust deed, your trustee can ask the court to make you bankrupt.
Money advisor responsibilties
After a money adviser has assessed a debtor’s circumstances and found a trust deed is the most suitable type of debt relief product, the money adviser may assist the debtor in making an application.
Where a trust deed application is granted, the trustee in the trust deed takes responsibility for its administration. However, a money adviser may still give advice to a debtor.
In order to use the Common Financial Tool and have access to the associated trigger figures, you need to apply for a licence. The assessment tool to be used is the Common Financial Statement, as operated by the Money Advice Trust. For more information on this please visit: http://www.cfs.moneyadvicetrust.org/
Click here for guidance on using the Common Financial Tool.