Benefits of a Trust Deed
Sometimes, there's just no way to repay a debt in full. If you can't repay your unsecured lenders everything you owe them in a reasonable time, you might benefit from entering a Protected Trust Deed. Here's a run-down of the drawbacks and benefits of a Trust Deed - if you'd like more details on how they actually work, click here.
Benefits of a Trust Deed
Entering a Trust Deed can deliver quite a few benefits…
Legal protection from your unsecured lenders
Stick to the terms of your Protected Trust Deed and your unsecured lenders won't be able to take any action against you (like trying to make you bankrupt).
Help staying in your home
Unlike bankruptcy / sequestration, entering a Trust Deed is unlikely to mean you'll lose your home. It can actually help you stay in your home: your monthly payments towards your unsecured debts would be designed to be affordable after you've accounted for your mortgage / rent payment (and your other essential costs).
Once your Trust Deed comes to a successful close, any outstanding debt included in your Trust Deed will actually be written off - you won't be required to repay it.
A date to look forward to
In most cases, a Trust Deed will last for four years. So entering one can give you a date to look forward to - as long as you fulfil your side of the Trust Deed, you'll know when it'll be over, and when your unsecured debts will no longer be 'hanging over' you.
Drawbacks of a Trust Deed
As you might expect, there are also drawbacks to take into account if you're considering a Trust Deed…
Requirement to release equity (in some cases)
If you're a homeowner, you might be required to release equity from your property so you can pay back more of what you owe your lenders. If you can’t release equity then your Trust Deed can be extended by 12 months.
Effect on your credit rating
As a form of insolvency, a Trust Deed will have a serious impact on your credit report. It'll stay on there for six years - although you should note that this is from the time it starts, not from when it finishes. Since most Trust Deeds run for three years, this means you could find it harder to obtain any credit during the three years immediately after your Trust Deed.
Need to be committed
A Trust Deed requires commitment - your lenders will expect you to stick to your side of the agreement and if you don't, your Trust Deed could fail, which can result in you being made bankrupt. If your IP (Insolvency Practitioner) doesn't think you can realistically commit to making those payments, they won't suggest a Trust Deed in the first place.
Possibility of failure
The success of your Trust Deed isn't guaranteed - it's up to you to make sure you stick to the terms of your agreement throughout. On that subject, you'll also have to make sure you keep on paying your mortgage / rent, as these payments wouldn't be part of your Trust Deed.
Article Updated 12/12/2013