Could a Trust Deed write off all my debts?
A Trust Deed cannot write off all of your unaffordable unsecured debts. However, it could write off a portion of them - as well as making all your debts more manageable.
Trust Deeds cannot help everyone - only those who are really struggling with their monthly payments. It is only available to residents of Scotland who have at least £5,000 in unsecured debts, or £10,000 worth if they are joint debts.
If you can't see yourself being able to clear your unsecured debts in full in a realistic amount of time, you may be eligible for a Trust Deed.
How can a Trust Deed help?
Although a Trust Deed can't totally write off all your unsecured debt, it can make it more manageable, which should make a big difference.
It works like this. Firstly, a qualified Insolvency Practitioner will help you to figure out how much you can afford to pay into your Trust Deed each month. They'll do this by taking all your essential costs into account - like food and your mortgage - so that your Trust Deed payments can be made alongside them. You can then only go ahead with these new payments if enough of your lenders agree to the proposed terms of your Trust Deed.
While you are making these reduced payments, interest and charges on your debts will be frozen and you'll benefit from legal protection against your unsecured lenders.
If everything goes as planned, your Trust Deed will probably last four years. After this time, any remaining debt in your Trust Deed that you can't afford to repay will be written off.
So although your debts won't be written off in full, a portion of them will still be written off. Bear in mind, however, that you might be asked to release some equity in your home in order to offer more money to your lenders and, if this is not possible, then your Trust deed can be extended by 12 months. This is a drawback, but it's probably preferable to solutions like bankruptcy - where you might simply lose your home.
What if a Trust Deed isn't right for me?
If you're really struggling with your debts, but you can't afford to commit to monthly payments, a Trust Deed isn't likely to be the right solution for you. In this case, you might want to look into bankruptcy. It's always best to talk to an expert if you're not sure - fill in the debt solution finder on this page if you'd like to speak to someone.
A Trust Deed will also damage your credit rating for six years - although it's likely that your credit rating would have been damaged anyway, if you're really struggling to repay your debts.
Article Updated 12/12/2013