There’s a number of different debt solutions in the UK to deal with debt, but there’s differences in England, Wales and Northern Ireland to Scotland. The Scot’s law is different so debt solutions are regulated by a different organisation. In Scotland, Insolvency solutions are regulated by the AiB, whereas the rest of the UK is registered with the Insolvency Service. A Protected Trust Deed is a Scottish debt solution which helps a person become debt free, but is it too good to be true?
Trust Deeds – Are they safe?
I’m a skeptical person when it comes to debt and credit. There’s nothing for nothing! So when I heard about the Protected Trust Deed (or the IVA in the rest of the UK) I couldn’t help but think it was a con.
The Trust Deed debt solutions allows a person to pay one monthly payment to one company for a fixed period of time. At the end of the solution the remaining debt is written off.
Mark owes £20,000 to 4 different companies. He lives in rented accommodation and is single. Mark works full time and earns £1,400 per month. His monthly living expenses, before paying debt is £1,150. This means he can afford £250 towards his debt every month. At present, (changing on 28th November 2013) Trust Deeds usually last for 3 years however this will move to 4 year plans. Over the 3 years and paying £250 per month, Mark will repay £9,000 and the remaining £11,000 will be written off. At the end of the solution, interest and charges are written off too.
Doesn’t it seem too good to be true? That’s what I thought! Why would a creditor not stop and say, “Well I’ll take the £250 for 7 years and get all the money back”?
The truth about Trust Deeds
Any insolvency solution should be entered with care. Get debt advice from a charity before you enter ANY debt solution. Companies that only sell trust deeds will try and make you fit their solution. However, in practice, Trust Deeds can help get you debt free in a fixed period of time and write off debt.
Creditors owed money are likely to accept the Trust Deed proposal because it’s better than you entering bankruptcy. Research shows that people rarely stick to debt solution plans which last for longer than 5 years. It’s because it is very tough to spend 5 years of your life repaying debt and having no income for fun.
If your Trust Deed proposal excludes assets or doesn’t offer a fair repayment plan then the creditors can reject the offer – so make it the best proposal you possibly can!
The Trust Deed pitfalls
I researched this article before writing it and spoke to debt charities and the AiB to get an understanding of the pitfalls that exist. Some of the most common problems that exist with a Trust Deed are
1. The Company: The company administering the Trust Deed isn’t necessarily acting in your best interest. There are varying degrees of customer service, so a Trust Deed at one company isn’t the same across all companies.
2. Fees: There are fees in a Trust Deed taken from your monthly repayment. These fees should be considered too.
3. Your house / assets: If you have a house or other assets with equity then this may be released to pay towards the Trust Deed. It’s unusual for a house to be sold in a Trust Deed, but if the equity can’t be released in a remortgage or family / friend buy-out then it may have to be.
4. Bank account: If you owe money to the bank you use for wages / benefits / direct debits, then you have to switch bank account or risk having your accounts frozen.
5. Job: It’s unusual but your employment may have an issue with you entering a Trust Deed! Check your employment contract.
Should I enter a Trust Deed?
In order to resolve debts, over 7,000 people in Scotland enter a Protected Trust Deed every year. It’s a great solution for some people. You offer the best deal, including assets and disposable income, towards your creditors and if accepted, you will be debt free at the end.
A Trust Deed is not suitable for people with large amounts of equity, shares, stocks, bonds or money in the bank which would be greater than the amount of unsecured debt.
The only advice I could give anybody thinking of entering a Trust Deed and wondering if it’s a safe solution for them is to seek professional debt help from a charity! A not for profit organisation will help you get through the problems associated with being in debt and give you all your options.