What is a Trust Deed?
Trust deeds are an insolvency process that you can enter into voluntarily. They were created to help people who find themselves unable to pay back large amounts of unsecured debt.
If you are struggling with mounting debts or threats of legal action, you may be able to use a Trust Deed as a way to manage the situation and ultimately become debt free in 4 years.
How does a Protected Trust Deed work?
An agreement is made between you, the debtor (person owing money) and your creditors (people lending the money) to repay part or all of what is owed. The trust deed transfers control of all your assets to the trustee who will be a licenced Insolvency Practitioner (IP). The IP will use your assets to help pay off some of the debts and arrange your monthly payment plan which will normally run for 48 months.
At the end of the 4 year period any outstanding debt will be written off along with any charges, fines or penalties associated with those original loans.
The Trust Deed process is an alternative to the other personal insolvency options; Sequestration (bankruptcy) or a Debt Arrangement Scheme (DAS).
What is the difference between Voluntary and Protected Trust Deed?
It is important to understand the difference between a Trust Deed and a ‘Protected’ Trust Deed. You should only apply to use this type of insolvency process with the intention of securing the ‘Protected’ status.
Voluntary Trust Deed
A voluntary trust deed is not binding on creditors.
This means that even after you have entered into your payment plan these same creditors can change their mind and come looking for their money again or approach the courts to try and force you into bankruptcy.
Protected trust deed
A protected trust deed is binding on all creditors.
As long as you comply with the conditions of your Deed then your credits are legally bound by the agreement and cannot take any further recovery or legal action against you.
The ‘protected’ status also stops you (the debtor) from applying for bankruptcy (Sequestration) during the term of the Trust Deed.
If you obtain any other credit after signing the Deed then this will need to be dealt with separately and cannot be included in your original Deed.
A Trust Deed requires a Minimum debt level of £5,000 to become Protected.
How long does it take to set up a Trust Deed?
Approx 5-8 weeks depending on the complexity of your situation & the number of creditors.
It takes approximately 4 weeks for a Trust Deed proposal to be drafted by the Insolvency Practitioner. The proposal is then sent to all the creditors who then have a further two weeks to approve it.
How long do I have to pay contributions?
Normally 48 months.
The only real exception to this would be if you have equity in your house and you do not wish to sell it. This may force a situation where you have to make payments for a longer period to cover the fact that you did not provide any money from your house.
What happens if I fail to pay my monthly payments?
If you find that your circumstances have changed through some unforeseen situation, such as you lose your job or become ill, then it is possible for your Deed to be adjusted to accommodate this. The first thing to do is to contact your Insolvency Practitioner to make them aware of your new situation so they can advise you on the best course of action. Your IP will be the one to approach your creditors to negotiate any changes to the Deed.
A Trust Deed is a legally binding agreement and as such you are expected to honour your part. If you simply stop making payments without a good reason you will probably force your creditors to file for bankruptcy.
Can I get credit whilst the Trust Deed is running?
Yes, but your credit score will have been affected. You are not legally barred from obtaining credit but you will find it more difficult to obtain. You may have to pay higher interest rates and the total borrowing amount available to you will be lower than you would normally receive.