Trust Deeds Scotland and IVAs: the Pros and Cons

You are protected from creditors

Trust Deeds and IVAs relieve a major source of stress – creditors! No more horrible phonecalls, nasty letters or the fear that they might turn up on your doorstep. Your trustee will deal with your creditors and distribute your payment to them.

Your debt interest and charges are frozen

One your Trust Deed is protected or your IVA approved, all interest and charges are frozen from that moment on. Chances are good that a significant proportion of your debt is made up of fees, interest and charges – IVAs and Trust Deeds stop this in its tracks and will not allow the debt balance to keep rising.

You know when you will be debt-free

Normal debt can feel like a heavy burden that will go on for years without end. Trust Deeds and IVAs on the other hand last for a defined period of time – 36 months and 60 months respectively – so straight away you know the date you will be debt-free.

You pay only what you can afford

Unlike normal debt payments which can take over your monthly budget and force you to cut back on the essentials, Trust Deeds and IVAs allow you to pay an affordable monthly amount once all of your essential living expenses are taken into account. You’ll never have to make a decision between making a debt payment or paying a utilities bill or buying food.

You can still protect your career or business

People in positions of fiscal responsibility or in public office are forbidden from declaring bankruptcy, and it also makes running a business very difficult if you are a company director. Trust Deeds and IVAs allow you to carry on with your career relatively freely and may not even hinder you if you need to obtain small amounts of credit for business purposes if you own your company.

Your confidence and self-esteem will increase

Trust Deeds and IVAs can take you from a place where you feel really low and emotionally battered and build your self-esteem and confidence back up. You’ll regain a sense of control over your own financial destiny and begin to plan for a debt-free future.

You will learn new financial management skills

Some people find themselves in debt due to sheer bad luck, perhaps through redundancy or illness. Others find themselves in debt due to bad spending habits. Trust Deed and IVA programmes help you to develop your financial muscles and learn to live within your means. It can correct poor financial habits and give you a firm base upon which you can build you financial future.

Now the cons of a Trust Deed or IVA...

Your credit rating is affected

There is no way to avoid your credit rating being affected by a Trust Deed or an IVA. However, chances are you may have already defaulted on some of your debt payments, which will have been recorded on your credit record, or have been seriously contemplating bankruptcy, which would have done far worse to your credit record.

You may have to remortgage your property

Part of a Trust Deed or IVA agreement with creditors is that you will surrender some of your higher value assets to release cash to pay off some of your debt with them. This may mean that equity in your home above a certain level will need to be released by remortgaging, which can be a daunting proposition.  Occasionally Trustees are willing to forego an interest in your property if a friend or family member is willing to offer them a lump sum in lieu of this interest.

You can only include unsecured debts

Certain debts cannot be included in a Trust Deed or IVA. These include any loans secured on an asset, such as your property, a car or domestic goods. As of April 2011, Student Loans can no longer be included. Only unsecured credit or loans are eligible to be included.

Your payment also goes on Trustee fees

Part of your Trust Deed or IVA payment will always go to your Trustee for their services. They deal with the day-to-day administration of your payment programme, which includes negotiation with creditors and sending payments to them, not to mention having to do the paperwork required to apply for and complete a Trust Deed or IVA plus any variations that crop up along the way.

Your IVA or Trust Deed will be entered onto a register and/or advertised

A permanent record of an IVA or Trust Deed is lodged with the Register of Insolvencies, which is a public record. In the case of Trust Deeds, when someone applies for it to become protected it must also be advertised in the Edinburgh Gazette. However, although they become a matter of public record, it is highly unlikely friends, family or work colleagues will ever find the details. The Register and the Gazette tend to be scanned only by financial professionals and lenders.

You are not protected from enforcement action by creditors of ‘new’ debts

It might sound odd, but sometimes people forget about a debt that has been lurking forgotten in the background ticking along unnoticed. Also occasionally new debts from ‘buy now, pay later’ schemes can suddenly become due when the grace period ends. These forgotten or new creditors can still pursue you for your debts so it is important to rack your brains and make sure every debt has been declared to your Trustee.

When you’re in serious financial trouble, Trust Deeds and IVAs can be a lifeline but like every debt solution they must be right for your circumstances. Take the time to speak to a qualified expert advisor who can discuss your options with your in confidence. Call today on 0800 043 2027.