A Scottish Trust Deed should not be confused with a Debt Management Programme which takes a more informal and therefore less conclusive approach offering creditors payment in full, over whatever length of time it takes to clear their debts.
 
debt consolidationA Trust Deed is a process that enables an individual who is struggling with unmanageable debt the opportunity to make a proposal to their creditors in order to clear their debt. All creditors are circulated with the proposals being made and providing no creditors who have claims totalling greater than 1/3 of the total debts, vote to reject the proposals then the Trust Deed becomes protected and therefore legally binding on all of the creditors that were circulated with it.
 
A typical Trust Deed consolidates all of a debtors unsecured debts into a single and more affordable monthly repayment over a period of 36 months, which is then paid to creditors on a pro-rata basis. This payment is carefully calculated with the debtors assistance and takes into account all of their assets and liabilities, their income and their cost of living expenses. The amount payable to creditors is determined by the amount that the debtor can reasonably afford to pay after their normal cost of living expenses have been deducted from their income. This will ensure that the debtor never gets into any arrears or misses paying any of their priority commitments such as their mortgage or rent, car finance, utility bills or council tax, etc.
 
When a Trust Deed is accepted by creditors it becomes 'protected' and creditors have no alternative but to stop any further interest from accruing on their outstanding debts. Providing the debtor keeps to the terms of their Trust Deed then their debts will be considered settled in full when it has finished.
 
Any outstanding balances are written off.
 
It is surprising how few people know that the option of a Trust Deed even exists, hopefully the following notes will explain the process.....
 
In order to enter into a Trust Deed a debtor has to have their proposal to creditors drafted with the assistance of a licensed Insolvency Practitioner known as a trustee. The trustee acts as an honest broker between the debtor and their creditors and will ensure that the proposal being drafted is both realistic and fair to all of the parties concerned. When the proposal is finished a draft copy is sent to the debtor to be approved. It is at this point that any alterations are made if necessary. Once approved the trustee sends a copy of the Trust Deed to each creditor.
 
Creditors can either accept or reject the debtors proposals or accept them with modifications but modifications can only be made with the debtors consent. If a creditor chooses not to reply then this is considered as an acceptance of the proposals being made. The rules of a Trust Deed state that providing no amount greater than 1/3 of the total debt is rejected by creditors then the Trust Deed is agreed and becomes protected and therefore binding on all parties notified.
 
When a Trust Deed is protected the trustees role becomes that of supervisor, monitoring the Trust Deeds progress and ensuring that its terms and conditions are properly adhered to. Upon its successful completion the debtor will be considered debt free even though they may not have actually paid off all of their debts in full. Any outstanding balances are written off (known as a composition of debt) and the debtor is free to make a fresh financial start.