Would a Trust Deed affect my mortgage?
If you're a Scottish resident and you can't afford to repay your unsecured debts as they stand in a reasonable amount of time, a Trust Deed could be the answer to the problem.
A Trust Deed is a Scotland-only insolvency solution, designed to help borrowers who are seriously struggling with their unsecured debts, e.g. credit cards, catalogues and overdrafts.
If you're considering a Trust Deed and you're a homeowner, you may be worried about how it could affect your ability to make your mortgage payments. But the good news is: it won't. Each monthly payment you make into your Trust Deed will be calculated to leave room for all your essential costs - so you should confidently be able to keep up with your mortgage payments while repaying as much of your debts as you can afford.
How will a Trust Deed affect me if I'm a homeowner?
The basic idea of a Trust Deed is that you'll repay as much as you can afford towards your unsecured debts for a period of four years (in most cases).
During this time, as long as you keep up with your payments, your lenders won't be able to take any further action against you and - once your Trust Deed has successfully ended - they'll write off the remaining included debt.
If you're a homeowner and you're currently repaying a mortgage, your monthly Trust Deed payments will be lowered to a level that fits around these payments, alongside all your other essential costs (such as food, utilities and Council Tax).
Moreover, unlike sequestration (also called bankruptcy), your home won't be at risk of repossession on a Trust Deed, although you may have to release some equity to go towards your debts. This would increase the overall size of your mortgage, but it shouldn't add more to your mortgage payments than you can realistically afford. If you can’t release any equity your Trust Deed could be extended by 12 months.
Are there any drawbacks to a Trust Deed?
As you've read above, entering a Trust Deed if you need to has some real advantages. However, there are some downsides too.
A Trust Deed will have a big impact on your credit rating - which will be affected for six years from the day your Trust Deed starts. As a result, you'll probably find it difficult to get further credit during this time - and it's likely you'll be charged a higher rate of interest for any credit you do get.
Do you think a Trust Deed could be the solution for you? Find out if you could qualify here.
>Article Updated 12/12/2013