When faced with an overwhelming amount of debt, you may already be considering a sequestration. However, a Trust Deed could be an alternative way for you to tackle your debt. If you have at least £5,000 of debt from two or more creditors and you have a regular source of income, a Trust Deed may be an effective product for you. Before making any financial decisions, it’s always important to understand the pros and cons. Council Tax Advisors has comprised a list to help you make the best decision. If you are still unsure, CTACIC can provide free and impartial debt advice to help you make the right decision.
Avoid creditor hassle
Unsecured creditors who have agreed to the terms and conditions of a trust deed are required to leave you alone as soon as it is protected. Your trustee will deal with all contact from your unsecured creditors from this point on. They will distribute your payments among them according to the terms of your trust deed.
Avoid interest and charges
Any charges and interest from your unsecured debt are usually not applied, so long as you abide by the specific repayment plan. If your trust deed is protected, even unsecured creditors cannot instigate any proceedings against you.
Normally, a trust deed will only last for around four years. This will alleviate the weight of debt that is carried for years on end. A trust deed gives you an opportunity at a clean slate.
Disposable income will be used to pay creditors
Living expenses such as your rent or mortgage, bills, food and work-related travel costs will take priority in your trust deed budget. This means you will never have to go without in order to make your repayments. However, luxuries such as gym memberships and holidays will not be allowed.
You have the option to negotiate to keep your home rather than sell it. This is a huge fear people have to deal with when facing a sequestration. Being forced to sell a family home and move into rented accommodation can be incredibly distressing. A trust deed can prevent this from happening.
Carry on trading
If you own a business, or you are a sole trader, you will still be able to carry on trading. You may even be able to obtain very small amounts of credit, unless the terms of your trust deed stipulate otherwise.
Damaged credit rating
One of the biggest issues of trust deeds is the fact that it will inevitably affect your credit rating. There really is no way to avoid this, although it is important to remember that your credit record is already being affected if you have missed payments on your debts.
Sell or re-mortgage
There is a very real possibility that you will have to sell or re-mortgage your home. This usually applies to a main residence if it has little or no equity. There are several options to avoid having to sell, however the trust deed will certainly need you to sell all high value items to raise the funds to pay your creditors.
Your trust deed will be recorded on the Register of Insolvencies, which is in fact a public record. If someone knows where to look, they will be able to find out about your trust deed. However, this is highly unlikely unless they are specifically searching for the information.
Risks of missed payments
If you miss a payment during your trust deed agreement without contacting your trustee for a discussion beforehand, you may find that the trust deed will fail. This will mean your unsecured creditors are entitled to pursue you for sequestration again.
Does not cover secured debts
Only unsecured debts will be covered by a trust deed, so any loans that are secured to your home or through hire purchase agreements will not be covered.
Does not cover new debt
Running up any new debts during your trust deed agreement means that any new creditors will be able to pursue you for your new debts. Your existing trust deed does not cover debts incurred outside of the agreement.