When you are facing financial difficulties it can seem like your are flooded with information which is hard to understand and even harder to apply to your own personal situation. Below is a step-by-step guide which outlines for you the most important issues you will encounter when looking at a Protected Trust Deed as a means of tackling your debt problems.
What is Trust Deed?
If you are struggling to repay your debts, depending on your circumstances, a Protected Trust Deed (PTD) may offer a solution. Signing a Trust Deed is a serious decision so before you do so, make sure you understand what it is and if it’s right for you.
A Trust Deed is a legally binding agreement, which can only be carried out through a licensed Insolvency Practitioner (IP) who will act as the Trustee. The ultimate goal is for you to exit the agreement with your debts repaid or written off, while protecting your assets and making sure your personal situation is taken fully into account. You will be required to abide by the terms set out for you which. This may seem daunting at first, but we will be on hand every step of the way to ensure your PTD is concluded successfully, allowing you to leave your debt worries behind you.
To qualify for a Trust Deed you must reside in Scotland and meet certain other criteria, such as having a minimum debt of £5,000 (although this may differ depending on the provider) and being able to meet the minimum monthly payment of £100. To find out more read on through our step-by-step guide.
Signing a Trust Deed is a legally binding process with lasting consequences, so the first step is to make sure you know it is the right agreement for you. At TrustDeedCalculator.co.uk we provide a Licensed Insolvency Practitioner, who acts as a Trustee, to take you through the whole process if you decide to proceed. Your Trustee will discuss your personal financial circumstances and build a Protected Trust Deed (PTD) proposal, which will keep you safe from threats of legal action creditors may make and means that your home, car and any other vulnerable assets will be protected against repossession.
Your Trustee is the person who will decide whether or not you have met your obligations and whether you will be discharged from your debts when the Trust Deed ends, and with TrustDeedCalculator.co.uk you know your Trustee is someone you can trust.
Developing a Proposal for Creditors
After you have agreed and signed the Trust Deed with your Trustee, they will send a proposal to your creditors. This proposal will outline your payment plan, how your assets – if you have any – will be dealt with and how much creditors will receive throughout the duration of the Trust Deed.
Creditors have five weeks from the publication of a Notice in the Register of Insolvencies to accept or reject the proposal. If your creditors do not object to the Trust Deed, or do not respond to it, then the Trust Deed will be accepted and at this stage it achieves protected status. Once your Trust Deed is protected, your creditors cannot take action against you to recover your debts. If sufficient objections are received then the proposal will fail and your Trustee will give you further advice about how to pursue an alternative debt solution.
As a general rule, creditors will expect you to repay as much as you can afford. They do not have to accept the amount that has been offered and are unlikely to agree to a Trust Deed if they think you can afford to pay more than you have offered. However, at TrustDeedCalculator.co.uk we have worked hard to build a reputation for successfully achieving creditor support, and with our experience you can be confident that we will negotiate the best possible deal for you and your family.
Once the PTD begins your Trustee will work to realise the value of your assets for the benefit of your creditors, however, your Trustee is required to allow you to keep essential assets that you need for your house and family, and working with TrustDeedCalculator.co.uk you can be sure that we will always keep your circumstances and interests at the heart of the process.
Setting up a Payment Plan
Your Trustee will help you establish a realistic budget to determine the level of affordable monthly payment you can make towards your debt. This single monthly payment will replace all your other monthly contributions to existing creditors and forms the basis of the Trust Deed. You must be confident that you will be able to adhere to the schedule of repayments, as it is crucial to the conclusion of the PTD that these are made in full according to the agreement put in place with your creditors. Provided you comply with the terms of your Protected Trust Deed, your creditors cannot take further action to recover the money you owe or make you bankrupt.
Where does the money come from?
The money needed to fund your Trust Deed usually comes from two sources; contributions from your income and your assets. Normally, you will have to pay a contribution from your income. Your Trustee will advise what you should pay after taking into account your living costs and monthly expenses.
If you take on any new debts after you sign the Trust Deed, you will not be protected from legal action by your new creditors.
If you are a homeowner, the level of equity – which is the difference between the value of your home and the amount you owe to the secured lender – is determined at the beginning of the Trust Deed. If you have a lot of equity in your home it must be released to your Trustee to pay to your creditors. Your Trustee will discuss with you the different ways to release your equity before your Trust Deed is signed. It is highly unlikely that you will be forced by your Trustee to sell your property, and if any such risk is present our adviser is likely to suggest that you pursue an alternative debt solution.
If you cannot afford the minimum monthly payment for a Trust Deed, Bankruptcy (known as Sequestration in Scotland) is often a viable alternative.
Which debts are not covered?
A Trust Deed does not cover every type of debt and some debts will still exist even after the agreement has ended. These debts include:
- Fines, penalties, compensation and forfeiture orders imposed by any court
- Any liability due to fraud including benefit overpayments
- Student loans
- Money owed to someone who holds a security on your property, such as a mortgage or secured loan
How long will the process take?
The normal duration of a Trust Deed is four years, although the time period is dependent on your initial level of disposable income.
If you need to extend the timeframe of the PTD or it suits your situation, it can be lengthened by a year. At the end of the PTD, provided you have fully complied with the agreement, your debts will be marked as paid.
Any outstanding amount or difference between the total amount owed and repaid is written off. There may, however, be some exceptions to this rule, and if you will be affected then your Trustee will make sure you are fully aware.
Will it affect my employment?
Some employers, most commonly financial organisations, do not allow employees who have signed a Trust Deed or who have been declared bankrupt to work for them. Check the terms of your contract or speak to your employer before you sign a Trust Deed if you are concerned about how this will affect your employment.
What are the advantages of entering a Trust Deed?
There are many advantages of entering into a Trust Deed agreement.
One of the key benefits is the role played by your Trustee. They will deal directly with your creditors and handle any legal threats or final demands you may receive, helping to relieve any stress and pressure. Your Trustee is the point of contact for your creditors and is responsible for negotiating an affordable proposal on your behalf. They will also administer payments and manage the PTD on your behalf.
When your PTD becomes protected, creditors cannot take legal action to recover their debts and are bound by the terms of the Trust Deed.
The PTD process is tailored to your situation and you will not have to pay more than you can afford. The level of repayments will take into account: your income, expenditure, total debt and your personal circumstances.
A PTD allows you to regain control of your finances and set a cap on your debt. Additional charges are not incurred through the process and the fees from the services of the Trustee are paid through the monthly repayments being made. As a result, this allows you to work towards a fixed target bringing the solutions to your debt problems back within your reach.
Once the scheduled payments of the PTD are over, your debts are written off.
What are the disadvantages of a Trust Deed?
Before beginning this debt solution you should be aware that there are some disadvantages of using a PTD, and that it is not suited for everyone. All risks must be taken into account and any queries should be directed to your Trustee before agreeing to the PTD.
Disadvantages include the fact that creditors can reject the proposal, preventing the PTD from becoming protected, so you may have to find alternative means of finance to solve your debt issues.
Your credit rating is likely to be affected, which may make it difficult to obtain credit in future. A note of your use of this debt solution will be included in your financial record and future creditors may see you as too big of a risk or offer you unfavourable credit terms.
There may be a risk on your home, through remortgaging. However, your Trustee will always make you aware of this and any other potential risks and try to find a way to solve your debt issues which is beneficial for you.
What if my circumstances change?
If your circumstances change after signing the PTD, your payment plan may be reassessed. If your income increases, your Trustee may ask for a higher monthly payment and if your income decreases, your Trustee may be able to negotiate lower payments to your Creditors.
If you acquire any additional assets through a cash windfall, such as inheritance or a lottery win, you must tell your Trustee. The control of these assets may be passed to your Trustee and they can use them to pay your creditors.
If you sell your home and it was initially excluded from your PTD then any money you are left with after paying your secured loans can be passed to your Trustee.
Failure to cooperate with your Trustee
When your PTD comes to an end, as long as you have met all its requirements, you will be discharged from all your Trust Deed debts and your creditors will be unable to obtain any money that was owed to them prior to you signing the Trust Deed. If you fail to cooperate with your Trustee they you may find that you are not discharged from your debts when your PTD comes to an end. You can appeal against any such decision in a Sheriff Court but.
If you fail to comply with any conditions, your Trustee can ask the court to make you bankrupt if it is in the interests of your creditors.