How To Use A Trust Deed To Write Off Unaffordable Debts

Ask someone if they know what a Scottish Trust Deed is and you’ll get one of two responses. They’ll either think it has something to do with the property market or they won’t have a clue what a Scottish Trust Deed is at all. What they usually won’t know is that it is a very useful type of debt solution specifically aimed at residents of Scotland who are struggling to make repayments on their debts.

So what is a Scottish Trust Deed?

A Scottish Trust Deed is the Scots equivalent of an Individual Voluntary Arrangement (IVA), although the criteria are slightly different. For a start, they are more in your favour! Instead of you being relentlessly pursued by your creditors for the full amount and all the stress that entails, a Scottish Trust Deed sets out a legally binding agreement with your creditors to only repay what you can afford towards your debts over a specific period (usually 48 months).

Whatever debt is left over at the end is written off and you become debt free!

Scottish Trust Deed

Iakov Filimonov/

What are the criteria for setting up a Scottish Trust Deed?

You may have taken out too much debt to cope with a pay cut, illness or redundancy, all of which are very good reasons to look at a Scottish Trust Deed as a debt solution, and you’ll find the criteria are straight forward to qualify. First you should be a fixed resident in Scotland.

Second you should owe a minimum of £5,000 of unsecured debt. Third, you should be in full-time employment, because you will be required to pay a minimum of £100 towards your debts every month. If you fulfil these criteria, then you should be able to apply for a Scottish Trust Deed.

What are some of the benefits of setting up a Scottish Trust Deed?

If you’re finding it tough to repay your debts, if you’re worried that your assets are at risk of being taken by your lenders to pay off your debts and you cannot find a viable debt solution, Scottish Trust Deeds are loaded with benefits to help you.

For example, all the interest and charges on your debt are frozen at the time your agreement is signed so the debt will not continue to accumulate. Also the majority of your monthly repayment will pay off the debt and not go straight into the bank’s pocket. Your assets – your car and your home – are also safe from repossession by the banks during the time you are making payments to your plan.

Even better, a Scottish Trust Deed must be administered by a qualified insolvency practitioner who arranges meetings with your creditors, negotiates on your behalf and distributes payments accordingly. Also the popular debt solution is overseen by the AiB (Accountant in Bankruptcy) so you don’t have to have the stress of dealing with your creditors any more.

Anyone giving debt advice on debt solutions must also be authorized and regulated by the Financial Conduxt Authority, so be sure to check them out on their public register first.

What are the downsides?

There are some disadvantages to Scottish Trust Deeds. Your credit rating is affected during the time you are making your repayments. However, circumstances may have already forced you to default on your payments to lenders by the time you set up your Scottish Trust Deed, which will have affected your credit rating anyway. Just keep in mind that your credit rating will start to recover as soon as the plan is finished and you will one day have a good rating once more.

You may even find that after the Scottish Trust Deed is complete, the likelihood of you wanting to obtain further credit will be a slim and you will probably want to steer well clear of debt and credit for good!

Working out your budget for a Scottish Trust Deed

One of the key things needed to make Scottish Trust Deeds work well is a realistic and workable monthly financial budget. Your Insolvency Practitioner will ask you to make a list of your income and outgoing expenses in the form of a budget, which he will send to your creditors as proof of the amount of disposable income you will have to pay them.

Getting the figures down on a paper budget for a Scottish Trust Deed is one thing. However being able to stick to the budget is quite another! The initial budget you work out for your Scottish Trust Deed is a balancing act. On the one hand you may be tempted in the beginning to offer as much money as possible to your creditors, but you must remember that your Scottish Trust Deed will run for around 48 months. Could you live on a self-imposed highly-restrictive budget for three years? Or will you start to feel deprived after a few months?

Here are some tips to help you put together your Scottish Trust Deed budget so that you can live happily within it:

– Write down every source of income you have, including tax credits and child benefit.
– Next work out how much you spend every month on living expenses. Start with essential spending on housing (mortgage/rent), council tax, insurance, food and utilities. Don’t be tempted to skimp on essential food and heating and impose poverty conditions on yourself. Scottish Trust Deeds do not require you to live like a pauper. Likewise don’t cut out building and/or contents insurance in case the worst happens. Protect what you have.
– Add in job-related expenses, such as public transport costs and car expenses (petrol and insurance). These are important to ensure the continued stability of your income to pay your Scottish Trust Deed.
– Now add in something for health, beauty, clothing and entertainment. You would not be allowed to spend a fortune on these (for example multiple salon treatments or an expensive haircut and colour may be out), but a basic haircut every now and then, plus dental and medical expenses should be fine within a Scottish Trust Deed budget. And don’t believe you can get away without spending on clothes! Sooner or later you will need new items of clothing to ensure you continue to look professional at work, but again be realistic about the costs. Prada and Dior suits will be outside of the budget for your Scottish Trust Deed.
– Finally, work out the monthly costs of irregular or annual expenses like vehicle MOTs, servicing and tax, TV licence, equipment servicing (for example your boiler or other gas appliances), subscriptions, birthdays and Christmas. Then factor these in.

Now add up all your expenses and subtract them from your income. Is there a surplus? You need around £150-£200 every month for a Scottish Trust Deed to stand a chance of being accepted by your creditors. If you haven’t, you must go back and re-work your figures.

Areas in a budget that could be reduced without too much pain include switching to cheaper mobile phone tariff or PAYG and lowering cable subscriptions to a cheaper package. Also switching your utilities or insurance to cheaper providers could free up a little more income for your Scottish Trust Deed budget. There are many excellent websites with suggestions on how to reduce your household expenses relatively quickly and painlessly.

At the beginning, it will feel awkward to stick to your budget. You may see something you want in a shop and instinctively reach for your debit or credit card only to find them gone. Before your Scottish Trust Deed you were used to using credit cards to supplement your income and these will not be available for you to use any more.

Now you must plan and use cash wherever possible. It will take discipline to stick to your budget and put aside money for future expenses, but at the end of the Scottish Trust Deed term your financial muscles will be incredibly strong.

Finally, because of the inevitable cost of living rises and salary fluctuations over the term of your Scottish Trust Deed, your Insolvency Practitioner may request your financial information every six months to make sure you can still afford the payments. If you find you have been having problems with your budget, this is your opportunity to ask for their advice and rework it a little.

You can’t live a champagne lifestyle on a lemonade budget, but by adjusting your lifestyle and incorporating the power of Scottish Trust Deeds you can enjoy something far better than champagne – freedom from worry about your debts and the prospect of a completely fresh debt free start in three years time.