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What are the Pros and Cons of a Trust Deed?
To help you better decide whether a trust deed is right for you, we have compiled a list of some of the main pros and cons of Trust Deeds. Whilst this list by no means covers everything regarding trust deeds in Scotland, it is designed to help you quickly see some of the main pros and cons and allow you to calculate how these may relate to your personal circumstances.
Trust Deed Pros
No More Stressful Phone Calls – Once your creditors have agreed to the terms of the trust deed they are no longer allowed to contact you regarding your debt. The person in charge of you trust deed will handle all communications; eliminating stressful phone calls and letters demanding money from you.
Your Debt will not get Bigger – Once you enter a trust deed agreement, and as long as you abide with the terms agreed, all charges and interest related to your unsecured debts are removed. Furthermore, if your trust deed is protected, your creditors are unable to take any proceedings against you, including those creditors that did not agree with the terms of the agreement.
An end to Your Debt – Most trust deeds only last for approximately 4 years; after which you will be released from your debt regardless of what you still owe. This allows you to start again with a clean slate.
You will only pay what you can Afford – When calculating how much you must repay each month, living expenses such as rent/mortgage, bills, food and work-related expenses will take priority. Whilst this does mean that luxuries such as holidays and gym memberships are not allowed, it also means that you will be able to keep a good standard of living whilst repaying part of your debt.
You will have more Chance of Keeping Your Home – Unlike bankruptcy proceedings, a trust deed agreement generally allows you to protect your home from creditors. Removing the enormous stress of your home being sold to pay your debts.
Your Business Continues to Operate – If you own a business, you will be allowed to continue operating, as well as protect your reputation and get access to limited credit if needed.
Is a Trust Deed my best option?
Trust deeds are the best option for many as they are legally binding with your creditors and debt is usually cleared within 5-6 years. Assets can be kept and a payment structure is made that suits your situation. However a trust deed can be very strict and needs to be kept to. If it fails then there is a risk of bankruptcy. Certain professions can also be affected by insolvency, so check your contract of employment before going forward with a trust deed. Whether you’re accepted onto an trust deed or whether other options such as Debt Relief Orders (DRO) or Bankruptcy are better options, depends on certain criteria. Complete our quick online assessment to see which is best for you.Take our quick online test
Trust Deed Cons
Your Credit Rating will Fall – A trust deed will show up on your credit history as well as reduce your credit rating. This will of course make it more difficult to get credit in the future.
You may Lose Your Home – Whilst trust deeds generally feature many options designed to allow you to keep your home, there are exceptions. Therefore, there is a very real possibility that you may be required to sell your home as part of the trust deed agreement. As such, it is very important that you consider all the pros and cons of a trust deed in regards to your property.
You may have to sell Assets – You may be required to sell any valuable assets you have in order to raise funds. This includes the possibility of you being forced to downgrade what type of car you drive.
It may Affect Your Pension – If you pay into a pension, you may be forced to reduce the amount you pay into it or even stop entirely for the duration of the trust deed agreement.
It Only Covers Unsecured Debts – Because trust deeds only cover unsecured debts, loans that are secured on your home or via hire purchase agreements will still be required to be paid.
It will be made Public Record – Whilst your trust deed will not be advertised like a bankruptcy would be, it will still be made public record and can therefore be accessed by anyone wanting to find out about your financial statement.
You Must Not Miss a Payment – There can be some very serious consequences if you fail to make a monthly repayment. Whilst it is possible to defer a payment or extend the duration of the contract, this must be done in advance and with your creditors approval. Because trust deeds generally last for approximately 48 months, you must be prepared to pay every month for the entire period. If you fail to do so your creditors will be allowed to pursue other options, including seeking to have you declared bankrupt.