A trust deed is a debt solution available only to residents of Scotland. It’s an alternative to bankruptcy which might be suitable for individuals who can no longer manage their debts without continuing to borrow more. They are also commonly known as “Scottish trust deeds” or a “protected trust deed.” Now that you know what is a protected trust deed, let us proceed to look at its Importance.
Upon signing one an individual is committed to repaying what they can reasonably afford towards their debt. This will typically be based on an agreed monthly payment. Also, those with assets (generally equity in their home) will need to contribute to the trust deed instead of the asset value as well.
They last for three years, and at the end of the term, funds will have accumulated in the trust deed. These funds are used to pay the fees of the Trustee and also to pay a dividend to the creditors. Any debts that are not repaid by the dividend are legally written-off and can no longer be collected by the creditors.
It helps in predicting financial pressures
When mortgage rates rise, a further financial pressure is predicted. Eight million people in the UK will be affected by this increase, which experts forecast will begin happening in mid-2011.
If insufficient money is left over to make debt repayments, a danger of a “debt spiral” is created. This could be described as being a situation where debt repayments are being made, but are only affordable because further credit is being used to cover the costs of other essentials. When this happens, the overall level of debt can begin to increase very quickly.
It helps to break debt-spiral
A trust deed can break this “debt spiral.” The payment into a trust deed is based on what an individual can afford the cost of essentials such as housing, energy costs, transport, and food have been taken into account. The person who is signing the trust deed, therefore, has a realistic budget upon which they can live without relying on the use of further credit.
It is crucial that anyone worried about debt takes professional advice about the options that are open to them. While this will be the perfect solution for many people, others may be better off selecting other options such as bankruptcy, a debt management plan or the Debt Arrangement Scheme.