Residents of Scotland are offered a debt management solution similar to the Individual Voluntary Arrangement available to residents of Wales and England.
With a Scottish Trust Deed, Scottish residents can free themselves from unsecured debt in only three years.
With living costs increasing and many people losing their jobs, this is becoming an increasingly popular way to handle debt. Consumers should explore this and other formal debt solutions in addition to the informal alternatives.
A resident of Scotland with debts totaling at least £10,000 and stemming from two or more sources may qualify for a Trust Deed if they receive steady income. This formal agreement is made between a debtor and creditors with the assistance of an insolvency practitioner (IP) called a trustee.
The involvement of the IP makes the process much easier for the debtor and eliminates the need for court involvement. IPs help debtors determine who much they can afford to repay, get creditors to agree to the amount, and manage debt payments.
By determining the amount of debt that can affordably be repaid, individuals are often able to lower their debt payment. Once creditors have accepted the proposed repayment amount, the debtor makes a single monthly payment that covers total debts.
This payment is issued to the trustee, who allocates the correct amount of money to each creditor, saving the debtor time and effort.
Creditors are not obligated to accept a Trust Deed and even if they do, the debtor is not always protected from creditors wishing to take legal action. This debt management tool is considered “protected” when objecting creditors represent no more than one-third of the value of debt, or the minority in number.
Once a Trust Deed is protected, covered creditors may not take legal action against the debtor for the entire term of the agreement, which is typically 36 months. Interest and other charges are usually frozen, preventing debts from growing.
Though the cost to establish this agreement is typically free, trustees charge for their services. Under the arrangement, owned items are used to repay debts. The home may be included in these assets, putting the debtor at risk for homelessness.
Self-employed individuals may use this debt management solution but company directors and some public workers may not.
During the agreement period, a covered debtor may not use or obtain credit. Once the Trust Deed ends, the covered creditors must write off remaining debts. However, secured debts may remain and must be repaid. If the arrangement is unprotected or the debtor fails to make payments, bankruptcy may result.
In addition, the credit impact of this debt management solution lasts for six years.
As of November 2011, the rate of bankruptcy in Scotland was twice that of the remainder of the UK and predicted short-term job growth was only 0.4 percent. Scottish residents who are finding themselves in debt are using Scottish Trust Deeds to prevent bankruptcy.
Many are able to write off as much as 90 percent of unsecured debt, making debt repayment more affordable.