Personal Difficulties > Trust Deed
Protected trust deeds were introduced
by the Bankruptcy (Scotland) Act 1985 and have become an
increasing important and popular alternative to sequestration
(Scottish term for bankruptcy). In recent years, the number
of trust deeds has exceeded the number of sequestrations.
A trust deed is
a formal insolvency procedure, peculiar to Scotland, and
has the effect of transferring your assets and liabilities
to a qualified insolvency practitioner, known as the trustee.
The principal
purpose of a trust deed is to enable a return, not necessarily
full settlement, to creditors within a three year period
in a cost effective way.
You should be
aware that your assets e.g. property, car, shares, insurance
policies and vehicles may be sold and you will be requested
to pay a contribution commensurate with your earnings.
What
is a trust deed?
A trust deed is
a legal document which can be signed by an individual (for
personal and business debts), a trust or a partnership.
It is not available to companies.
Trust
deed - a means of addressing financial difficulty
For many people,
sometimes through no fault of their own, unpaid debts can
become a major problem, leading to stress, domestic difficulties
and concern for the future. When your unpaid debts become
unmanageable compared to your income and/or the assets available
to you, the pressure from creditors can become intolerable.
One method of dealing with the situation may be to sign
a trust deed.
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The
benefits of a trust deed
A trust deed
includes your business as well as personal assets/liabilities.
It transfers all assets and liabilities to an insolvency
practitioner who will administer the estate on behalf of
your creditors. You are relieved from the obligation of
dealing with your creditors: that is your trustee's job.
If the trust deed
is successful and converts to a protected
trust deed, your creditors are not allowed to commence debt
collection procedures against you e.g. an earnings arrestment
or an attachment order.
As long as you
keep to the trust deed proposals accepted
by your creditors, they are bound to adhere to the arrangement
once the trust deed has become protected.
The
consequences of signing a trust deed
All of your assets
are transferred to your trustee. This means that if you
own your house, it may be sold.
It is not normally
possible to act as a director of a limited liability company
but you can maintain a bank account (if your bank agrees)
and you can continue to work. The only people who have to
know about the the trust deed are your creditors, and they
are advised of the process by the trustee.
The only public
advert is in the Edinburgh Gazette : there is no advert
in your local newspaper.
You will be required
to co-operate with your trustee throughout the duration
of the trust deed.
The trust deed
will not invalidate any earnings arrestment/attachment
order which occurred before the trust deed
was signed.
If you do not
adhere to the terms of the trust deed, you run the risk
of your trustee petitioning for your sequestration.
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Trust
deed process
Prior to a trust
deed being signed and placed before your
creditors for consideration, you will need to consider the
effect of losing assets that you own because you can expect
to retain only basic household items. Click here to see
a list of such items. You will also have to think about
the level of contribution which you can make from your earnings.
The key to a successful
trust deed and hence, agreement from creditors
tends to be a reasonable contribution from your earnings
and this is a matter for discussion and agreement with your
trustee before the trust deed is signed.
Typically, a trust
deed will last for three years although each case will be
reviewed on its merits.
What
does a trust deed look like?
A trust is a legal
document of four or five pages. It is prepared by
the trustee and signed by you in the presence of a witness.
How
much does it cost?
The trustee will
agree his fee with your creditors and/or the accountant
in bankruptcy, normally on an annual basis. Such fee will
be paid from the monies collected from the realisation of
your assets and receiving your contributions : you do not
have to pay the trustee's fee in addition to the regular
contributions you pay. Therefore, if you have no assets
and are unable to pay a contribution, it is unlikely that
a trust deed will be possible.
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Are
there any other options?
Some people ignore
their creditors and hope they will go away. This is not
an advisable course of action and rarely succeeds.
It may be possible
to arrange a repayment programme with your creditors, possibly
for less than the full amount which you are due to pay them.
You may wish to consider declaring yourself bankrupt, or
waiting for a creditor to make you bankrupt. Further information
on these options is contained on this website.
How
do I proceed?
Further information
can be obtained by contacting either Michael Reid (insolvency
practitioner) or Michelle Byrne (insolvency manager) who
will be pleased to meet with you for a no obligation consultation. Each
case is different and the advice given will be tailored
to the individual circumstances of your situation.
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