In recent times, consumers have seen TV ads encouraging them to consider using a trust deed wizard to get rid of their debt. These adverts have been met with mixed reactions from the public with most people claiming that the tool is just a hoax meant to acquire personal information from consumers without really helping them. Well, the truth is for users to determine for themselves. Trust deeds, however, were created by government legislation centuries ago. They are therefore the real deal. Keep reading to find out how they work.
The Definition of Trust Deeds
The Scottish trust deed is a legally binding agreement between a debtor and creditors to offset the debt over a period of three years. This voluntary agreement is created by an insolvency practitioner. Establishing these agreements does not cost anything, and debtors are not required to make advance payments to Insolvency Practioners.
How They are Established
A debtor approaches a suitable insolvency practitioner with the view of establishing a trust deed. The financial position of the debtor is put under a microscope to determine their suitability. Total debts, monthly income and expenses are calculated to determine the surplus. The insolvency practitioner then drafts a trust deed proposal which is presented to creditors once a meeting of creditors has been called. During the meeting, creditors are asked to take a vote on the proposal. If majority of the creditors ascent to the plan, the agreement will be considered protected. However, creditors are not under any obligation to accept the proposal.
How the Debt is Paid
After the agreement has been formalised, the debtor must satisfy every condition that has been outlined in the agreement, failure to which credit reporting firms will be notified and creditors will be allowed to take the appropriate legal action. These agreements have a term of 48 months. The debtor must therefore pay 36 instalments to offset the debt. The amount of money to be paid monthly is determined by factoring in the expenses and income of the debtor. Once the final instalment has been paid, the debt is considered fully settled, even if there is a deficit between the total amount of money paid and the original amount of debt.
The Scottish trust deed, just like bankruptcy, are supervised by a trustee. Trustees are basically insolvency practitioners who supervise trust deeds. They are tasked with ensuring that debtors meet their obligations. Trustees collect monthly payments from debtors and forward them to creditors. They facilitate communication between the two parties. Trustees also report any default to credit reference agencies. At the beginning of the process, trustees are the ones who determine the suitability of the debtor for this voluntary agreement.
Benefits of Trust Deeds to Debtors
Once creditors vote in favour of the agreement, it becomes protected. This means creditors will not be able to take further legal action against to debtor to recover their moneys. They will also be prohibited from ever contacting the debtor directly. This means that all the phone calls, emails and warning letters in the mail will stop. This can give debtors peace of mind. The amount of money debtors pay to offset their debts under this legal debt settlement option is must lower than what they owe. The interest rates on loans are also brought down to zero and penalties frozen. This will prevent the debt from increasing any further.
What to Keep in Mind When Initiating the Process
These voluntary debt settlement agreements between creditors and debtors have a number of disadvantages that debtors should be aware of. For instance, they may have to remortgage their homes to get back their equity to repay their debts. Once the agreement is formalised, debtors will also have to surrender their property ownership rights to the trustee. This means that they cannot sell any asset during the 3-year period. Their credit rating will also be affected during this period.
Who Can Apply
Scottish trust deeds are only meant for people who reside in Scotland. This includes anyone who owns or rents a house in Scotland. Debtors must have unsecured debts amounting to 4,000 British Pounds to qualify. This debt must be owed to at least two creditors. The type of job a debtor has may prevent him or her from qualifying. Debtors must have a surplus in their spending, or they should be able to create a surplus easily.