A Guide to Trust Deeds and Sequestration
(Applies in Scotland only)
What is a Trust Deed?
A trust deed is a voluntary agreement between a debtor and their creditors, via an insolvency practitioner, whereby the debtor agrees to pay a set amount over a period of (normally) 3 years, after which time the rest of the debts are written off. They also agree to realize any they have for the benefit of their creditors.
The debtor signs a trust deed and the creditors are asked to agree or disagree to the proposals. They are given between 4 and 5 weeks to reply.
If they agree, (or if they do not reply, it is counted as agreement), the trust deed gains protected status, it becomes a “protected trust deed” giving the debtor complete protection from their creditors. They are unable in law to pursue you for the debt.
If they do not agree and the creditor who opposes the offer has one third of the debt, or if half of the creditors in number oppose it, the trust deed does not become protected allowing the creditors to continue legal action. It is very unusual for this to happen and we will be able to advise beforehand if it is likely to fail.
The debtor agrees to hand over any assets and any spare income for the benefit of their creditors and in return the debtor is “protected “ from the creditors.
In effect the creditors are not allowed, by law, to carry out any debt collection procedures such as wage or bank account arrestments.
 What if it does fail?
Then the debtor has the
option of filing for their own bankruptcy
(sequestration). This will cost at present, £70.
We will help you with this and the outcome
will be the same as above except that the creditors
will receive less of a dividend, if any. 
What are the advantages?
- You will make one affordable monthly or weekly payment.
- Your creditors will not be able to pursue you for the debts
- All legal action will be stopped
- No more phone calls
- No court appearances
- No more threatening letters
What are the disadvantages?
You will not be able to incur any more debts, you will not be able to stand as an MP, MSP or local councilor. If you fail to keep to the agreement, your home may be at risk.
Who can apply for a trust deed?
Any individual or partnership can apply. Generally you must have at least £10,000 of debts before you will be considered. If you have less, you should consider a debt management plan or full and final settlement of their debts.
How long does it take?
Every case is different but in general a trust deed can be set up within days. If you have assets, it may take longer.
What is an asset?
Anything that can be sold to raise money for the benefit of the creditors such as house equity (the difference between the outstanding mortgage and the value of the house), an expensive car, stocks and shares etc. We will advise you fully on this before suggesting a trust deed. Will I lose my home? NO. We will ensure that you do not lose your home. We are experts at arranging trust deeds so that debtors can keep their home and car.
How much will it cost?
Your payment will depend on how much available income you have after all your ongoing household and family expenses have been taken into account. You will be expected to make a contribution from your income for 36 months. In some cases you may pay nothing. You trustee may accept a proposal based on assets only. In this case the trust deed may last only a year or so.
Will my credit rating be effected?
Signing a
trust deed may effect your credit rating,
however, your credit rating will most probably
already be effected. If you have missed any
payments to your creditors, these are recorded
on your credit file, the signing of a trust
deed will, in most cases, not make any difference.
The fact that you have signed a trust
deed will not normally be recorded
on your credit file. For more information
on your credit file see Equifax.
What are the other options? Trust deeds are only one way to deal with a problem debt situation. We have over 15 years experience in helping people choose the right option. Other options include a debt management programme, full and final settlement, debt consolidation or even getting the debts written off.
How will I know if I am suitable for a trust deed?
Simple, complete the forms on the next page and send them to us. We will make an assessment of your situation and let you know if it would be an option for you.
What happens once I agree to a trust deed?
We will help you compile a list of your creditors and a financial breakdown of your income and expenditure. We are very experienced at this and will ensure you have enough of an income left to live fairly comfortably. We allow more income to be retained than any other debt advice company. We will then negotiate a figure with a Trustee that is suitable to all parties and arrange a visit from a member of the Trustees staff to sign the trust deed and arrange monthly payments. We will offer full support for the period of the trust deed should any problems such as unemployment occur. What is Sequestration?
Sequestration is the Scottish term for bankruptcy. Any individual can declare themselves bankrupt as a method of dealing with a multiple debt problem.
What is the difference between trust deeds and sequestration?
Both trust
deeds and sequestration come
from the Bankruptcy (
Scotland) Act 1985 and are generally the
same. A debtor agrees to hand over any
assets and available income they have for
a period of three years after which time
the rest of the debts are written off.
A Trust Deed does not involve any court
process. The process is however, slightly different. A debtor can only apply to become bankrupt if they are apparently insolvent.
They can apply
to the court, current cost £70,
and either nominate their own Trustee
or allow the court to nominate one for
them. It is always better to nominate
your own Trustee if you can afford their
fees. We can advise on this and arrange
a Trustee for you. Once the debtor is declared by the courts to be bankrupt, the Trustee realizes any assets and income for the benefit of the creditors.
Will I lose my home?
Sequestration is the same as a trust deed in that it is not automatic that you will lose your home. We can advise on how to ensure that you do not lose your home if you seek help and advice soon enough.
What are the advantages?
- You make one affordable monthly payment
- Your creditors are legally unable to pursue you for the debt
- It will lift any wage arrestments or bank arrestment currently in place (a trust deed will not)
- No court appearances
- No more threatening letters
What are the disadvantages?
Your will not be able to incur any more debts above £250 without declaring you are an undischarged bankrupt and you will not be able to stand for office i.e. MP, MSP or local councillor.
Why sequestration and not a trust deed?
A debtor would probably be better off seeking sequestration under the following instances:
- Where a creditor has already petitioned for their bankruptcy, it would in most cases be better to petition for your own bankruptcy. This way you have more control over the process.
- Where a creditor has already completed diligence (debt collection) and a wage arrestment or bank arrestment is in place or where a creditor has placed an inhibition on any property that the debtor has.
- Where the debtor has no available income and no realizable assets, and this is unlikely to change within 3 years.
What other options do I have? Debt management
You may look at other
options including a debt management plan
where you agree to pay a set amount towards
your debts every month until they are paid
off. For example you agree to pay £200
per month and your debts are £20,000.
this will take approximately eight and a
half years to pay off.
The disadvantages
are that the agreement is not legally binding
like a trust deed and the creditors can still
add interest and pursue you through the courts
and possibly arrest your wages and bank account.
Entering into a Debt Management Plan may
result in you paying back more than you currently
owe over a longer period of time.
Re-mortgaging
You may only be “practically insolvent” in that you have more assets than debts. Fior instance if you have £10,000 of debt and £30,000 of equity in your home, you could release some of that equity and pay off your debts in full or ask for a full and final settlement of the debts at roughly 75% of their value. We can help you with both of the above. The advantage of this is that the debts are gone very quickly but be aware that you mortgage payments will go up and if interest charges rise you may have difficulty in the future.
Debt Payment Plan
Under
the Debt Arrangement and Attachment (Scotland)
Act 2002, a debtor can apply to the courts
for a leagally binding debt payment plan
which covers most debts. Under this scheme
the debtor agrees to pay a set amount each
month until the debts are paid off. This
is similar to debt management accept that
the payments are legally binding on both
the debtor and the creditors.
Expert advice
We have been properly trained in all aspects of debt counselling over the past 15 years and can offer you the choice of how you deal with your debt explaining all the good and bad points associated with each method. Every individual case will be different and you should only use this FAQ page as a general guide. We offer a full information and advice service by telephone on 0141 424 1283 or e-mail at: |
