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Scottish
Trust Deeds
A Guide to Trust Deeds (NB. Applies in Scotland
Only)
If you have established that you
are insolvent and you live in Scotland then you may wish to consider
this option. It can be a powerful and successful way of dealing with the
debt problem but should not be taken lightly. It is still a formal insolvency
mechanism and one that requires a licensed insolvency practitioner to
act as Trustee.
Basically a Trust Deed is a document appointing an Insolvency Practitioner
to deal with your financial affairs. By agreeing to the Trust Deed and
signing the document, you are legally obliged to abide by the terms of
the deed and agree to a repayment proposal, under the guidance of the
Trustee. The proposal can propose a repayment of a proportion of the unsecured
debts that you owe and they last for a set period (usually 3 years).
How does it work?
Once you have decided to act, you will meet with the insolvency practitioner
and agree that you are insolvent but it would maximise creditors' interests
to propose a Trust Deed rather than sequestration (Bankruptcy).
The IP will work with you to analyse your financial position and prepare
a document to circulate to the creditors.
Once they are notified of the Trust Deed, they have a period of 5 weeks
to object to it. For a Trust Deed to fail, your Trustee will have to receive
objections in writing from more than 50% of your creditors or at least
one third in monetary value.
The interesting thing is that creditors who do not write back to the Trustee
with a specific objection are deemed to have accepted the Trust Deed.
Most Trust Deeds are accepted by creditors; this is because the alternative
is usually much worse than the Deed's provisions. In Sequestration it
is likely that they will receive nothing, so something is deemed to be
better than nothing.
Once the period of 5 weeks expires, the Trust Deed is accepted and protected
and thereafter all creditors are bound by it. If less than 50% or less
than one third object to it, they are still bound by the Trust Deed and
cannot carry out any action against you for recovery of any debts.
Advantages of Trust Deeds
Once the Deed is prepared the Trustee writes to all creditors and places
an advert in the Edinburgh Gazette. Provided not more than 1/3 rd of creditors
by value do not object, the Trust Deed will be automatically registered
as "protected", thereby preventing creditors from petitioning
for the debtor's sequestration or taking any other steps to recover debts
due to them.
By agreeing to the Trust Deed you will be protected from your creditors.
This will avoid sequestration, wages being arrested and other creditor
pressures.
It puts the debtor rather than creditors in control of the debtor's financial
situation and reduces the costs. It's a cheaper method for creditors than
sequestration as it costs less to administer than sequestration and allows
the debtor the right to fulfill certain public offices.
Property which is transferred to the trustee may be sold by him whenever
it is in the interest of your creditors for him to do so. This can include
your home provided the Trustee gets permission by other occupiers or owners.
Where there is a joint mortgage and no equity or only modest equity, it
may be better to do a Trust Deed that excludes the property.
Disadvantages of Trust Deeds
You may lose all of your property and assets (other than tools of the
trade and modest car). Your credit rating will be seriously affected.
You cannot act as a company director. If you fail to keep to the terms
of the Deed the trustee can petition for your sequestration.
The trustee can also petition for your sequestration if he considers that
would be in the best interests of your creditors, for example, by obtaining
the greater statutory powers available to a trustee in sequestration.
For more information please contact us on 0800 195 6762 or call a local
insolvency practitioner.
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