It can be a very difficult and confusing time for many people who are struggling with debt as they search for the right solution to try to get out of debt as quickly as possible. Scottish Protected Trust Deeds are one option that residents in Scotland may wish to consider as a means to clear their debts. This debt solution involves lower monthly payments to creditors and a proportion of debt can often be written off. You can find out more information on Trust Deeds and what’s involved at Debt Therapy Scotland.
Thanks to legislative changes which were put in place in November 2013 by the Scottish Government, Trust Deeds are viewed on the whole as a straightforward debt solution for those that need them. But that hasn’t always been the case. Before the Trust Deed legislative changes took effect, there was some concern across the industry over the quality of advice being offered by a small number of insolvency firms to debtors in need of help.
Such advice resulted in some debtors being entered into Trust Deeds even when this was not the right debt solution for them and in some cases the fees were often unclear throughout the Trust Deed process, affecting both debtors and creditors. The overall impact on creditors in relation to such practices was an important consideration. After all, should a Trust Deed fail, creditors will not receive the returns that are due to them. The legislative changes were therefore made to improve transparency throughout the Trust Deed process and to ensure that debtors and creditors can expect to be treated fairly.
Key facts about Scottish Trust Deed legislation changes
- Debtors have more protection
One of the main changes to Trust Deed legislation is the time period involved in this process. The term of the Trust Deed has now increased from 3 to 4 years. This change was put in place as a way of ensuring Trust Deeds are only offered to those that really need this type of formal debt solution.
For example, a Trust Deed would not be in the best interests of a person who is able to repay their debt in full within 4 years – another debt solution such as a Debt Arrangement Scheme (DAS) may be more appropriate. The emphasis here is that if a debtor can afford to pay back their debt in full within 4 years, then they should. The Accountant in Bankruptcy (AiB) now has greater powers to reject Trust Deed applications on this basis, meaning that only those with more serious debts are likely to be accepted.
Another benefit to debtors who are in receipt of Social Security Benefits is that Trust Deed contributions cannot be taken out of those payments, therefore offering much needed peace of mind in this respect.
- There is more transparency around Insolvency Practitioner fees
Creditors now must be notified of Insolvency Practitioner (Trustee) fees before they are asked to agree to the Trust Deed. In addition, Trustees must now charge fees upfront rather than hourly. This helps to avoid any confusion further down the line and should help to reduce Trust Deed fees overall.
- The minimum debt threshold for Trust Deeds has changed
Prior to the legislation changes, a debtor could only apply for a Trust Deed if their debt was £10,000 or more. The new changes reflect that the minimum debt threshold has now been decreased to £5,000, which is helpful for debtors who have a relatively low amount of debt but can’t afford to pay it back.
In summary
The legislation changes surrounding Trust Deeds are generally seen as welcome by debtors and creditors alike. Debtors can now feel more confident that they will be only offered a Trust Deed if it is indeed the right debt solution for their particular circumstances and both debtors and creditors are now able to learn the extent of Trust Deed fees upfront. The legislative changes will effectively help creditors to get better returns, which is paramount considering that Trust Deeds are granted for the benefit of creditors.
