Individuals, for a variety of reasons, sometimes find themselves in financial difficulties. Many of us experience periods of time when we have levels of debt we are not comfortable carrying. When your debts become unmanageable, however, and you find yourself in the position of needing to borrow more money (creating more debt) just to keep up with the payments on the debt you already have, the situation is out of control and serious financial advice is needed. Start by consulting the website of the Accountants in Bankruptcy (AiB), Scotland’s insolvency service.
Insolvency Services for Debtors
Accountants in Bankruptcy (AiB) is charged with administering the steps involved with personal bankruptcy proceedings. They are also responsible for recording Scotland’s corporate insolvencies. Citizens Advice Scotland and Money Advice Scotland are organizations that serve the public with free and impartial financial/debt advice. AiB’s website is the information source for the location of all the sites, email addresses and telephone numbers of their branches across Scotland. An appointment at one of these agencies will be quite helpful in providing information on the forms of debt relief that is available to you in your particular situation. One of the alternatives you may receive information on is Scottish trust deeds.
Trust Deeds-An Alternative to Bankruptcy
A trust deed is a voluntary agreement that a debtor enters into with the creditors of their unsecured debt. Unsecured debt is any debt not supported with assets of the debtor’s as collateral. You, as the debtor, engage the services of a qualified Insolvency Practitioner who then serves as your trustee. You must transfer the rights to some of your assets (property) to the trustee to sell. The proceeds are then paid to the creditors to cover part of the debt they are owed. They are also used to pay the trustee for services rendered. The agreement is only binding to those creditors who agree to the terms, for they are agreeing to settle your debt for only a percentage of the full amount owed to them. Creditors who do not agree to the trust deed may continue independent efforts to collect their debt from you. You must also pay some of your income towards the agreement debt settlement for a designated amount of time (usually three years).
A safer, more financially secure trust deed for your needs is the protected trust deed. To be eligible, you must have at least two creditors and a minimum of £4,000 in this type of debt (in most cases). Unlike the first deed example, no assets are assigned to the trustee for sale. You and the Practitioner will objectively consider all your unsupported debt, the amount of your income required for living expenses monthly and the amount of supplemental income you have available to apply to debt payments monthly. The Insolvency Practitioners and the Insolvency Firms are experienced in dealing with creditors and know what creditors expect and want in deed proposals in order to secure their agreement and acceptance of them.
How Does A Trust Deed Become Protected?
During the six week application process, creditors are given the proposal to review and then attend a formal creditors meeting with your Insolvency Practitioner during which they vote on the proposal. If either a majority of the creditors approve, or creditors representing over 33 percent of the debt approve, then the proposal becomes a protected trust deed. Once it is protected all of the creditors covered in it, whether they agreed to it or not, are legally bound by it. They may take no further action against you in pursuit of debt collection. The IP becomes your trustee, collecting your monthly payment in the amount you negotiated and distributing it to your creditors. This continues for the life of the agreement, usually for three years. At the conclusion of the terms of the protected deed, any remaining debt is considered to be paid in full and written off by the agreements’ creditors.
Debtors’ Benefits, Responsibilities and Consequences
A protected trust deed is intended as debt relief for individuals who are in serious financial difficulties. It is entered into in order to both be responsible and pay off as much debt as financially possible and also to protect oneself from bankruptcy. There are pros and cons which can only be completely explained to you by insolvency professionals. Before applying for such a deed, there are earlier, less severe steps that can be taken to manage debt and financial problems that should be pursued first.
Once the decision is made to pursue a protected trust deed and you have successfully achieved one, you do receive some definite benefits as well as take on specific responsibilities. With this legal protection in place, you are now able to focus on repaying your debt. You are relieved of the constant threat of collection action from your creditors. If your financial circumstances change for the better or otherwise during the course of the agreement, the trustee can assist you in getting it adjusted so you do not default on it. You no longer deal with each and every creditor; you only have to deal with your trustee, who handles everything else for you. As long as you fulfill all the terms if the agreement, there are no further finance charges from the creditors.
You will find it has a significantly negative effect on your credit score that will remain for a lengthy period of time. Certain employers prohibit their incumbents from applying for trust deeds and some businesses, particularly financial institutions, may not employ you now or in the future because you have one. You may be required to declare your deed on mortgage applications for years to come even after it is removed from your credit record. If you default on the agreement, your creditors become able to pursue you for bankruptcy.
Various forms of debt relief are available to Scottish citizens. Free advice is offered through Citizens Advice Scotland. Consult the Trust Deed Guide for further information on these agreements.