Trust Deed and bankruptcy - a comparison
If you're a Scottish resident dealing with problem debts, there are a number of options that might be open to you.
If you have unsecured debts of at least £5,000 or £10,000 for joint debts (including credit/store cards, personal loans and catalogues) that you can't repay in full in a reasonable length of time, a Scottish Trust Deed could be your best approach.
Alternatively, borrowers who are in an even worse position with their borrowing (i.e. who simply cannot afford to repay what they owe) could enter bankruptcy (also known as sequestration in Scotland) to face up to their debts.
Trust Deed: what you need to know
A Trust Deed is a formal, Scottish-only insolvency solution. If you have a significant amount of unsecured debt you can't pay back in a reasonable amount of time, a Trust Deed could be suitable for you.
If you enter a Trust Deed, you'll have a clear way out of unsecured debt problems, as long as you stick to the terms of the agreement. You will:
• Make a single payment per month, based on what you can afford after your essential costs (e.g. rent/mortgage, food & bills)
• Stop your unsecured lenders taking further action against you
• Have any included debt you can't afford to repay written off on the successful conclusion of your Trust Deed.
Entering a Trust Deed will affect your credit rating for six years, which means you're likely to find it difficult to get further credit during this time.
One benefit of a Trust Deed for homeowners is that they should be able to stay in their home - although they may have to release some equity to repay their lenders more of what they owe them. If equity cannot be released then the Trust Deed can be extended by 12 months.
Bankruptcy: what you need to know
If you find there's simply no way you can repay your unsecured debts in any kind of realistic timeframe and you can't commit to sizeable monthly payments, bankruptcy could be your best option.
In Scotland, bankruptcy is often referred to as 'sequestration' - and though it can come with a big personal and even professional impact, facing up to your debts could help you improve your overall finances in the long term.
Once you're made bankrupt, you will:
• Make monthly payments for up to three years if you can afford to - if you can't, you won't have to
• Prevent any further legal action from your lenders
• Have whatever portion of the debt you can't afford to repay written off once you're successfully discharged: usually after 12 months.
If you're a homeowner, your home (along with other items in your 'estate') may be sold and the funds used to repay your lenders. You also won't be able to work in certain professions, e.g. in local government or as a company director.
Like a Trust Deed, bankruptcy will affect your credit rating for six years.
Are you unsure about how to deal with your debt problems? We could give you the expert advice you need.
Article Updated 12/12/2013