The downsides of a Trust Deed Scotland

While there are many positive elements associated with Trust Deeds in Scotland which tackle the issue of debt and insolvency, there are also some downsides which you need to be aware of before you make your decision. These are not major issues in the long run but they are things which you will need to balance up in your own mind to see which option is best for you.

What is a Trust Deed?

Before we look at the negative points of Trust Deeds it is worthwhile remembering exactly what a Trust Deed is. It is basically a legally binding agreement between an individual and the courts which sees a trustee appointed to overlook your assets, your expenditure and your income. They will have full control of your financial life and they will also address and communicate with any creditors. If for some reason your financial situation was to worsen or indeed improve you are legally obliged to inform them of this.

The trustee of your Trust Deed will put together a payment plan which will allow you to at least pay back some of your debts if you can afford this. After the Trust Deed is over your debts will be written off and you will regain control of your financial life.

Downsides of a Trust Deed

There are not too many negative aspects with regards to a Trust Deed when you look at the overall picture and the financial and emotional stress you are likely to have experienced.

Your assets and your liabilities

As we touched on above, as soon as you agree a Trust Deed with the courts and a trustee is appointed your assets and liabilities will effectively be under their control. They may well ask you to dispose of some of your assets to pay off part of your debts and put together a repayment plan or they may well decide that you are not in a position to repay anything toward your existing debts.

What assets will you retain under a Trust Deed?

The debt market has changed dramatically over the last few years and there is now more consumer protection than ever before. Once you sign your Trust Deed your creditors will not be able to contact you direct and information which lands on your doorstep should be passed directly to your trustee. If asset were to rise after you assign the initial Trust Deed agreement you may well need to dispose of these or part dispose to pay off some of your debts.

Many people have major issues with regards to housing and the equity which they may well have in their home. It will be down to the trustees to decide whether you are forced to downsize your home but in reality you will not be left homeless and you will not be left on the street.

What do I need to declare under a Trust Deed?

Aside from the initial agreement where you will detail your assets, income and liabilities you also have a legal obligation to declare any changes in your financial situation and any windfalls you may receive. This is also relevant if your financial situation was to worsen so it is something of a double-edged sword. However, be warned, if you do not declare a significant improvement in your financial situation to your trustee’s and they were to find out via a third party at a later date you could be in serious trouble. They could impose fines, increase your repayment plan payments because in simple terms, this is illegal.

Will a Trust Deed affect my credit rating?

The simple truth is that once your debts have been frozen, interest accruals ceased and a Trust Deed has been put in place you will see a detrimental impact upon your credit rating. While the financial community has by signing the Trust Deed given you the opportunity to at least address part of the issue it would be foolish to allow you access to credit arrangements in the short to medium term. Indeed, how would further credit arrangements and loan agreements help you to reduce your debt when in fact you would be increasing it?

There is some debate as to how long a Trust Deed arrangement will impact your credit rating but the truth is that you will need to rebuild your rating once your Trust Deed is over. You may have a five-year period under which you will have restricted access to credit arrangements but this should more than give you enough time to get yourself back on your feet and rectify your financial problems.

Stick to your budget or else!

Under a Trust Deed your trustees will work out a lifestyle budget which will take into account your liabilities, ability to repay part of your debts, your income and your cost of living, whether this is for yourself or your family. There is significant scope to allow you to live a life with a social budget as well but you may well have to cut back on the luxuries of life in the short to medium term. You will very quickly need to learn how to stay within your budget limits and to ensure that your financial situation does not get worse by overspending.

If you are having issues with your Trust Deed agreement and believe that your lifestyle budget needs adjusting then you should contact your trustees as soon as possible. While there is a need to balance the fact you may have significant debts against the fact that you need to live there is some scope given to the trustees to help.

Conclusion

There are many long-term upsides to a Trust Deed arrangement and indeed while there are some downsides these are very minor in the overall picture. You will need to declare your assets, liabilities and income to your trustees, you will see your credit rating impacted by a Trust Deed agreement and you will need to stick very carefully to an agreed budget. However, when you balance off these “negatives” against the fact that your debt would be written off after your Trust Deed arrangement has expired and you will no longer have your creditors knocking at your door, surely it is a small price to pay?

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