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What will happen to my credit rating if I enter a Trust Deed?

From the day you start your Trust Deed, your credit rating will be affected for six years. Trust Deeds usually last four years - so this means that you will find it more expensive (and/or more difficult) to get credit during your Trust Deed and for two years afterwards.

This may seem like a big disadvantage, but you shouldn't really take out more credit during your Trust Deed anyway. Your IP (Insolvency Practitioner) and your lenders will expect you to be focused on paying as much as you can realistically afford towards your unsecured debts.

Plus, it's unlikely that you will want to create more debt for yourself - debt which won't be included in your Trust Deed - unless it's for something essential.

It's also worth noting that Trust Deeds are only available to residents of Scotland who owe at least £5,000 in unsecured debts (£10,000 if they are joint ones) and can no longer keep up with their monthly repayments. If you had carried on struggling to make your repayments, your credit rating would almost certainly have been damaged anyway.

What else happens when you start a Trust Deed?

If you decide to start a Trust Deed, you and your IP will need to work out how much you can put towards your unsecured debts each month. This can be figured out quite easily - they'll work with you to see how much you have left over after you've dealt with all your essential costs and bills (such as secured debts, food and fuel).

Your Trustee (who oversees your Trust Deed) will then offer this new, more affordable payment to your lenders, presenting them with a Trust Deed proposal that lays down the terms they think are reasonable.

If at least half of your lenders who are responsible for at least a third of your debt accept it, your Trust Deed will become protected. This will mean that you're protected against further legal action from your unsecured lenders (as long as you keep to your side of the agreement).

What happens at the end of a Trust Deed?

When you successfully complete a Trust Deed - usually after four years - the rest of your unaffordable unsecured debt will be written off. You will have the benefit of being free of your unsecured debts - but remember that your credit rating will be damaged for another two years.

Are there any other disadvantages?

Apart from the damaged credit rating, you may also be expected to release equity in your home (if you're a homeowner). If this isn’t possible then your Trust Deed can be extended by 12 months.

Trust Deeds are a formal debt solution, and a very big decision. It can be hard to make this decision on your own, so it's advised that you contact an expert to find out more about Trust Deeds work. If you fill in our debt solution finder, a friendly debt professional will ring you back. They can give you more information about Trust Deeds as well as advice on other ways of dealing with debts in Scotland.

Article Updated 12/12/2013