A Deed Of Trust Explained & How It Can Help You

Jane Wardle

Written by Jane Wardle on December 3, 2018

Updated June 10, 2019

Deed of trust guide

A deed of trust, also known as a trust deed, is an arrangement that allows you to combine your debts into one monthly payment in order to more easily pay off your debts. They normally last for two to four years, are only available in Scotland and can be voluntary or protected.

If you live in England, Wales or Northern Ireland, you can consider an Individual Voluntary Arrangement (IVA).

The Difference Between Voluntary And Protected Deeds Of Trust

Voluntary Deeds Of Trust

With a voluntary deed of trust, you make an agreement with your creditors to pay back some, if not all, of your debts to them. This includes a regular payment based on what you earn and other payments made from selling your property. You transfer the rights to things you own to a trustee, who sells these and uses the money to pay off your creditors.

Voluntary deeds of trust only apply to creditors who agree to the deed of trust’s terms. If more than two-thirds of your creditors agree to the deed of trust, and if the debts are over £5,000, it becomes protected. If less than two-thirds agree, you can still go ahead with a voluntary deed of trust, but creditors can then petition the court for your assets or object to the deed of trust becoming protected.

Protected Deeds Of Trust

With protected deeds of trust, you are legally protected against legal action from your creditors that would otherwise put your home or other possessions at risk. Once your debt is protected, you can’t apply for any other debt arrangement scheme or bankruptcy. No new debts are protected.

It’s worth remembering your home could still be at risk if you don’t keep up to date on your mortgage payments even if you have a protected deed of trust because creditors can still choose to take action for non-payment.

What Debts Are Included In A Deed Of Trust?

A deed of trust is designed to cover unsecured debts. Examples of these are credit cards and personal loans. It does not cover secured loans, including mortgages and hire purchase agreements.

The Role Of The Trustee

Trustees must be qualified insolvency practitioners. They are not only responsible for selling your property and paying off creditors; they have a legal obligation to advise you on the terms of the deed of trust you are signing and to explain what will happen if you break these terms and conditions. The trustee will file a notice for the deed of trust on the Register of Insolvencies, which is available to the public and can be accessed by banks and credit reference agencies.

A trustee will charge a fee equal to a percentage of the money collected during the deed of trust. They must tell you what this percentage is before you sign any agreement and give you an approximation of what the total fees to them will be.

The Effect On Your Credit Rating

A protected deed of trust will negatively affect our credit rating, potentially making it harder for you to get credit. It will remain on your credit file during the life of the deed of trust and for two years after it ends.

Is A Deed Of Trust Right For You?

Deeds of trust provide people with debts they can’t afford to pay back with the opportunity to become debt-free within a period of up to four years. There is no minimum on the level of debt, but they are unlikely to be approved if they are below £7,000. They work especially well for people who have a consistent income and money left over at the end of the month to make regular payments.

However, you need to remember that, as with everything in life, cons as well as pros when it comes to deeds of trusts. Your financial situation will be made public, for example, and your career could be affected if you hold a job such as a solicitor or an accountant. You might also struggle to get credit during the six years a deed of trust is on your credit record, impacting your ability to rent for example or take out a mortgage.

If you aren’t sure if it is right for you, speak to a debt adviser working for charities such as Step Change or Citizens Advice. They can help you review your income and expenditure, work out a budget, and review your options for managing your debt.

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