Differences Between Trust Deeds and IVAs
There is often confusion between Scottish trust deeds and Individual Voluntary Agreements (IVAs). Both are legal tools that can be used to help those in debt and share many similarities.
However, despite the several shared similarities, a trust deed is not an IVA. The two agreements have some notable differences and serve slightly different purposes.
What is a Scottish trust deed?
A trust deed is a voluntary legal agreement between you and your creditors that allows you to make one affordable monthly payment over a fixed term. If you meet the terms of your trust deed, your unsecured debts will usually be written off at the end of the term.
Trust deeds are only available in Scotland, and can only be set up by qualified insolvency practitioners, otherwise known as trustees. Trust deeds must be approved by all your creditors before they can go ahead.
What is an IVA?
Similarly to a trust deed, an individual voluntary arrangement, or IVA, is a formal and legally binding agreement between you and your creditors to pay back all or part of your debts over a period of time. This can be an affordable way to get out of debt and start fresh.
An IVA is open to residents of England, Wales and Northern Ireland. Whereas for Scottish residents, debt support can be found in the form of a protected trust deed.
What are the differences between an IVA and a trust deed?
Probably the biggest difference between an IVA and a trust deed is that individual voluntary arrangements are a formal debt solution available to residents in England, Northern Ireland and Wales. Whereas, on the other hand, trust deeds are formal debt solutions available to Scottish residents only.
An IVA can be applied for by any English, Northern Irish or Welsh resident, while a Trust Deed can only be applied for by Scottish residents.
Another key difference between the two agreements is that in a trust deed you must have minimum unsecured debts totaling at least £5,000, whereas in an IVA the minimum total debt level must be over £6,000.
Lastly, the length of time a debt management plan takes to complete varies depending on the type of plan. On one hand, an individual voluntary arrangement typically lasts for 60 months, while a trust deed is typically shorter, lasting for 48 months.
What are the similarities between an IVA and a trust deed?
A trust deed is very similar to an IVA. Both are formal agreements that allows someone with unmanageable debts to repay their debts over a period of time, without having to go through bankruptcy.
Possibly most importantly, both agreements exist for the purpose of helping people in the UK reduce their debts and get their finances back on track. Below, see some of the key similarities between the two agreements.
- Both a trust deed and an iva involve the debtor paying affordable monthly repayments in order to clear their debts. This allows them to write off any debt after a certain set period of time, typically either 48 or 60 months respectively.
- After all monthly repayments have been completed, any remaining debt is written off. This is often a key selling point for people considering either a trust deed or an IVA, as it gives them the chance to start afresh financially.
- Only unsecured debts can be included in an IVA or a trust deed. This includes debts like credit cards, personal loans and overdrafts. However, it does not include secured debts most notably a mortgage and student debts.
- In order to enter into either a trust deed or IVA your debts must also be from more than one creditor, and you must also be struggling to make the minimum monthly repayments.
- Under both agreements, your creditors are legally bound to freeze any interest or added charges that might have been accruing on your debt. This means that your monthly repayments should cover the actual debt amount, making it more manageable.
- Both debt solutions also offer similar protections from creditors. This means that your creditors and the people you owe money to are no longer allowed to contact you directly and are prohibited from taking any further legal action against you.
- Both a trust deed and an IVA will also be recorded on the public register. This is something that you should be aware of as it can potentially have an effect on your ability to get future credit and possibly impact future career opportunities.
- Both are more attractive options compared to sequestration (bankruptcy), as they don’t come with the same stigma and can be completed without having to go to court.
- Your credit rating will be affected by your IVA or Trust Deed and they will show up on your credit file. This could mean that you have a harder time getting approved for loans or credit cards in the future. However, having an IVA or Trust Deed shows that you took deliberate measures to improve your credit rating which can often be looked at favorably.
- Protected trust deeds and IVAs also show up on your credit file for six years. After this time, they will no longer have an impact on your ability to access credit, however they may do so during that initial 6 year period.
- In both cases, in the event that you receive a windfall, you must declare the amount of money to your debt advisor. They will need to be aware of this sudden influx of cash in order to make appropriate plans.
Will a trust deed or IVA impact my employment?
Entering into a Trust Deed should not have any consequences on your job as long as it doesn’t impact your ability to carry out your duties. If you are in a profession where insolvency is prohibited by your contract of employment, it is important to seek legal advice to see what options are available to you.
Similarly, IVA usually won’t affect your job, but it might be a problem if you work in certain professions. For example, if you’re in the polic force, you might not be able to keep working in your profession while you have the IVA.
How much do trust deeds and IVAs cost?
Setting up and administering a protected trust deed costs nothing upfront, and there are no hidden fees. The insolvency practitioner fees and any associated costs automatically come out of your monthly contributions or from assets included in a trust deed. The trustee’s fees are made up of a fixed fee, a percentage of the amount raised through asset sales and costs and expenses associated with the trust deed.
An IVA is very similar in that there are no hidden fees or surprise charges as all fees will be taken from your monthly payments. Within the monthly payment there is three category of fee to be aware of and these are: nominee’s fees, supervisor’s fees and disbursements. This could also include payments for the provision of additional services to get the best return for your creditors.