Scottish trust deeds offer a form of debt help for Scotland that is similar to the English IVA (Individual Voluntary Agreement) that enables a debt repayment deal to be agreed between debtors and creditors that benefit both parties. There are significant differences between the trust deed and the IVA, but they both basically have the same objective.
That is to enable the debtor to avoid bankruptcy, and the creditors to receive a better repayment than would have been possible were the debtor to be declared bankrupt. Although this form of debt help for Scotland would be a good choice for you if your debt situation is such that it was the best solution for you, many people are nevertheless unsure as to their position regarding their assets.
Before discussing assets, however, first, a very brief explanation of how Scotlands trust deeds work, and when you should and should not use them as a debt solution. If you have unsecured debts (credit cards, store cards, overdrafts) for which you find it impossible to meet the repayments, then a trust deed might well be your best bet. It will not help you with secured debts such as your mortgage or car loan, but if you cannot pay your mortgage because you are also trying to pay the credit card companies, then it might be a very good way to consolidate your unsecured debts and still be able to maintain your mortgage payments.
The first step with Scottish trust deeds is that a qualified insolvency practitioner will be appointed as your trustee, and will initially determine your income and outgoings. Your essential expenditure, such as your mortgage, council tax, utility bills, car finance and any other secured loans will be deducted from your income along with a sum that the trustee considers sufficient for your living expenses. What is left from your income after these deductions will be split between your creditors proportionate to how much each is owed?
Your creditors will then be made an offer of that amount each month for three years, and they have five weeks to object to the offer. A failure to comment is regarded as an acceptance, and if more than half don’t object, and if the total objections do not amount to more than a third of the total money you owe, then your proposal is accepted, and you start making the payments. Keep them up, and at the end of the three years your debts are regarded as completely paid, even if the amount actually paid is only a fraction of what was owed: 30% – 70% are not unusual repayment figures.
Your creditors will accept the agreement if they believe they will get less by forcing bankruptcy. So far, then, Scottish trust deeds seem to be of benefit to you. However, many people are worried about what happens to their assets, and here is where the bad news comes along.
If you own a car that is not essential for your work, then you will likely have to sell it and add that to the trust fund. The trust is initially funded by the balance left of your income as calculated by your trustee, and the trustee fees as agreed with your creditors are deducted from the fund. Your car (or boat, or motorbike) will be sold, and that added to the fund before the percentage payout to your creditors being calculated. If you have expensive collections, such as art or other artifacts, then these will be sold as will anything else regarded as not being essential.
If you own a house and have equity on it, you will likely have to realize that equity. You could sell it, and any profit added to the fund after your mortgage and any other loans secured on your property have been cleared, although, unlike bankruptcy, will be unlikely to be forced to sell it. A family member could contribute a sum equivalent to the equity, or your trustee could help you get a secured loan to the equity value.
The loan you receive will then be added to the trust, and your monthly repayment reduced because your loan repayment will be taken from your disposable income. However, it is not likely that Scottish trust deeds will involve you losing your home, although it is equally unlikely that you will be allowed to profit from selling it.
This is a better form of debt help for Scotland and its residents than being declared bankrupt. In that case, you are liable to lose all your assets, including your home contents in many cases, and a bankruptcy does far greater damage to your credit rating than a trust deed.
There are few doubts which are the better option, and when you consider that Scottish trust deeds were introduced as form of debt help for Scotland to enable bankruptcy to be avoided, and people to keep their homes while doing their best to pay as much as possible to creditors of unsecured loans, then it should be considered as a genuinely good alternative to ‘going bust’ as they say.