Pros and cons of a Trust Deed

What are the advantages and disadvantages of a Scottish Trust Deed?

Pros and cons of a Trust Deed

A Trust Deed can be a viable alternative to sequestration for individuals in Scotland with unmanageable and unsecured debts of over £5,000. You will make affordable monthly payments towards your debts over a typical period of four years. After that time, any outstanding debts are usually written off. 

A Trust Deed is a popular way for people in Scotland to manage their debts, but it’s just one of the options available. Like all debt solutions, it has distinct advantages and disadvantages, and they will determine whether it’s the right approach for you. 

Here, we discuss the pros and cons of a Trust Deed to understand the benefits and implications and whether it’s an appropriate debt solution in your circumstances.

The repercussions are less severe than sequestration

Along with keeping your home, you can continue acting as a company director if you enter a Trust Deed and you are not barred from certain professions. It also has less of an impact on your credit rating. 

There are no charges or additional fees

The fee to set up and manage the Trust Deed is included in your monthly payment, so there are no additional charges to pay. The fees are also closely regulated to make sure they’re reasonable.  

What are the cons of a Scottish Trust Deed?

It only includes unsecured debts

A Trust Deed can only include unsecured debts, such as credit and store card spending, personal loans, overdrafts, council tax arrears, utility bills, rent arrears and unpaid tax debts. You cannot include secured loans like a mortgage, maintenance payments to an ex-partner, fines, penalties or costs that are still ongoing. 

Your credit rating will be affected

The Trust Deed will stay on your credit rating for up to six years. It will be very difficult to access credit during that time, and any borrowing you secure will attract a higher rate of interest. Once the six years have elapsed, you will have to rebuild your credit rating.  

You cannot miss a payment

You must have a stable income and be confident in your ability to make the monthly payments. If you miss a payment without contacting your Trustee, your creditors can force you into sequestration. In exceptional circumstances, you may be able to arrange a payment holiday with your Trustee, but you must contact them as early as possible. 

Homeowners usually have to release equity

Homeowners can usually negotiate to keep their property if they agree to release equity to increase the return for their creditors. There may be an opportunity to make additional payments instead of equity, but that’s something you’ll have to discuss with your Trustee. 

It will be made public

Trust Deeds are listed in the Scottish Insolvency Register. However, it’s unlikely that extended family, friends, or work colleagues will find out unless they search the register for your details.

Your Trustee can claim new assets 

Your Trustee will regularly review your circumstances. If they find you have received property or money within four years of the start of the agreement, perhaps as an inheritance, they can put a claim on the asset to increase the repayment to your creditors. 

You may need to make other debt repayments
If you have debts you cannot include in the Trust Deed, you will need to think about how you’ll make the repayments without jeopardising your monthly contributions. 

How can we help?

At Scotland Debt Solutions, we will assess your circumstances, explain your options and recommend the most appropriate debt management solution. If a Trust Deed is suitable, we will work with you to draft a proposed repayment plan to present to your creditors. You can take the first step by requesting a free debt report, contacting our advisers for a free consultation or arranging a home visit.