A trust deed is employed in Scotland and is a voluntary but legally binding formal arrangement between a debtor, a trustee and their creditors. A debtor, an individual who often has a very large sum of debt they need to clear, volunteers to transfer their assets to a professional Insolvency Practitioner, known as a trustee. It is then the responsibility of the trustee to administer these assets between the creditors.
A Trust Deed represents an alternative to sequestration and is a far less formal process. It can also enable individuals to avoid some of the legal aspects which follow from being made legally bankrupt, as is the case with sequestration.
Advantages of a Trust Deed
The main advantage of a Trust Deed is that it lessens the stress on the debtor. Because all correspondence and creditor queries go through the trustee, the debtor is no longer forced to deal with them all. Therefore, a trustee needs to be someone who is dependable and reliable.
It gives the debtor control over the situation rather than the creditors. A Trust Deed is also a much cheaper and far more flexible option than segregating your assets to pay off your creditors.
As long as specific requirements are met, a Trust Deed is able to be documented in the Registrar of Insolvencies and deemed ‘protected’. This means that all creditors, whether they agreed to the terms or not, are unable to petition or try any other method to retrieve the money that is owed to them, as long as the debtor adheres to the Trust Deed terms.
The duration of a Trust Deed is fairly short compared to many debt management options and the debtor will be free from their debts approximately 3 years after the date it was granted.
Disadvantages of a Trust Deed
Once a Trust Deed has been granted, but not ‘protected’ it only binds those creditors who agreed to the terms and therefore it means than any other creditors will still need to receive their payments. Therefore, those creditors not bound by the Deed are still able to petition for the debtor’s sequestration. As a result, if a home owner is unable to pay their unbound creditors in full via another source they may be forced to sell.
One condition of your Deed becoming ‘protected’ is considers all of your property, and any property the trustee holds may be sold by them should it be in the interest of the creditors. Your trustee is also able to file for your sequestration if you are unable or unwilling to co-operate with them. Additionally, it may appear that your trustee is working with your creditors best interests in mind as they are able to sign for your petition if they feel it would be a better option for them.
Going through the process of a Trust Deed will result in the debtor being unable to hold the Director position of a limited company, additionally; several other public offices shall also be off limits.
For help with getting a trust deed please contact us here