Can a trust deed be canceled?
How does a trust deed work?
A trust deed is a voluntary binding legal agreement between you and all your creditors. It is a legal arrangement that allows you to make reduced affordable payments over a set period of time, after which your unsecured debts are usually written off.
A trust deed is only available in Scotland and is an attractive option for people who are struggling to repay their debts in full, as it can provide direction on how to get their finances back on track.
Trust deeds can only be set up by qualified insolvency practitioners, and they must be approved by all your creditors before they can go ahead. If you’re struggling with debt and are looking for a way to reduce your monthly payments, a trust deed could be the right solution for you.
Who can apply for a trust deed?
In order to qualify for a trust deed, an individual must meet certain criteria.
Firstly, they must have unsecured debts of at least £5,000. Secondly, they must be unable to repay their debts within a reasonable period of time. And thirdly, they must have a regular source of income sufficient enough to leave a surplus after all essential expenses are paid.
However most importantly, coupled with the above criteria, the individual must also be a resident of Scotland for a minimum period of six months in order to qualify.
If you meet the criteria and are struggling with debt, a trust deed could be the right solution for you. However, it’s important to note that a trust deed is a serious legal agreement and should only be entered into after taking advice from a qualified professional.
Can all creditors be included in a trust deed?
Most unsecured debts can be included in a trust deed, including credit and store cards, personal loans, payday loans and catalog debt.
Some debts that are not included within a trust deed are things like child maintenance, student loans, fines and some types of tax. Secured debts are also not included, as these are debts that are linked to an asset, such as a secured loan mortgage or car finance.
Canceling a trust deed
If you are finding it difficult to keep up with your Trust Deed repayments, it is important to speak to your Trustee, or licensed insolvency practitioner as soon as possible. They may be able to suggest ways in which you can get back on track, or help you to find alternative solutions.
If you decide that you would like to cancel your Trust Deed, this must be done through a legal process, and will require the agreement of all of your creditors.
How to cancel a trust deed
A Trust Deed is a legally binding agreement, so it cannot be canceled at will. If you are unable to pay the installments which your creditors find acceptable, your Trust Deed may fail – which could lead to your sequestration and the loss of your belongings.
If you would like to cancel your trust deed, you will need to get the consent of your insolvency practitioner. They can contact your creditors and let them know that they intend to end the trust deed and are seeking their discharge.
Canceling a trust deed would have the impact of returning you to the starting point. At that point, you could set up an installment plan/Debt Arrangement Scheme (DAS) as that may be a better option for you.
What happens after a trust deed ends
Once your Trust Deed is completed, your Trustee will send you a letter of discharge. This letter will also be sent to the Accountant in Bankruptcy (AiB), the regulatory body of Trust Deeds in Scotland, and the Register of Insolvencies will record your Trust Deed discharge.
If you enter into a trust deed, you will typically complete your repayment within 48 months. Provided you have made all of your payments as planned, this will count as full and final settlement of any unaffordable debts included in your trust deed
After you have been discharged from your Protected Trust Deed, you will be free of any debts owed to the creditors who were included in the Trust Deed at the time of registration. This means that your lenders are no longer able to pursue legal action for any money that was owed to them when you signed the Trust Deed.
The end of your Trust Deed term means that any remaining unsecured debt that you weren’t able to repay during your Trust Deed will be written off. This means that you are now free to enjoy life after debt.
What are the other debt solutions available?
Debt Management Plan (DMP)
A Debt Management Plan, also known as a DMP, is a debt solution between you and your creditors to pay all of your debts. Under a DMP, you make one monthly payment to a credit counseling agency, which in turn distributes the money to your creditors.
Under a DMP you repay your original debt meaning it has much less effect on your credit file than other forms of debt relief such as trust deeds or sequestration.
Debt Arrangement Scheme (DAS)
A Debt Arrangement Scheme (DAS) is a formal, government- backed and legally binding agreement between you and your creditors to repay your debts over an extended period of time.
Under the scheme, you make one monthly payment to a DAS Payment Programme Provider, who in turn distributes the money to your creditors. Unlike a trust deed, a DAS does not write off any of your debt, meaning it has less of an impact on your credit file.
Individual Voluntary Agreement (IVA)
An IVA is a legally binding debt solution between you and your creditors that helps you pay off your debts at an affordable rate. Just like a trust deed, all payments are made through an insolvency practitioner.
If you have an IVA and stick to the agreement, you’ll get protection from your creditors taking further action against you and some of your debt will be written off. An IVA generally last 5-6 years, after which any remaining debt is written off.
What is the difference between a trust deed and a protected trust deed?
The key difference between a protected trust deed and a trust deed is that a protected trust deed is legally binding. This means that your creditors have voted in favour of the new arrangement by a simple majority, and can no longer take legal action as long as you keep up with your monthly payments.
If a trust deed is unprotected, creditors demanding payment are not legally obliged to accept the proposed repayments. This could lead to legal action against you and a number of serious consequences including increased charges and interest on your debts. This is why is is crucial you aim to secure a trust deed with a protected status.
How long does a trust deed last?
Trust deeds in Scotland are typically set up for a period of four years. During this time, fixed regular monthly payments are made to a trustee, who distributes the money to creditors included in the trust deed.
In some cases, the trustee may be required to extend the term of the trust, either because the original term has expired or because the terms of the trust have not been met. In order to extend the term of a trust, the trustee must petition the court for permission to do so. If granted, the extension will allow the trustee to continue to administer the trust and carry out its terms.
What if my circumstances change during a trust deed?
If your circumstances change when you’re in a Trust Deed, the most important thing to remember is to tell your Trustee about any changes in your income, outgoings or debts immediately. This will help them to understand your current financial situation and could prevent any legal action being taken against you.
A change in circumstances may require you to make additional monthly payments if your income increases, or you may be able to reduce your payments if your income decreases.
If you are unable to continue making the payments required under your Trust Deed, your financial advisor will work with you to find a solution that allows you to complete the term of the agreement. If your circumstances have changed significantly since you entered into your Trust Deed, a variation in the agreement may be necessary.
Trust Deeds are designed to help you get out of debt and are are flexible, this allows them to be adapted to deal with new situations that may arise.
Will a trust deed affect my career?
There is no need for your employer to know if you have entered into a Scottish Trust Deed. That is unless they are one of your creditors or you are in a profession where it is frowned upon, such as a role where you handle money regulary.
It is unlikely you would lose your job if your employers found out, as it would not impact on your ability to do your job in most companies. However, it is important to keep in mind that different companies have different policies so, it is always best to check with your company’s HR department to find out what the policies are.
What are the set up costs of a trust deed?
The costs associated with setting up and administering a trust deed are all upfront and there are no hidden fees. The trustee’s fees and any associated costs will come out of your monthly contributions or from the assets realized as part of the trust deed.
The trustee’s fees are made up of three categories- a fixed fee, a percentage of the amount raised through asset sales and costs and expenses associated with the trust deed.