Is a trust deed a good idea?
Nobody can answer this from a website. A trust deed can suit some people and not others, and these questions help you think it through before you speak to an adviser.
Whether a trust deed is a good idea depends on your circumstances, and only someone who looks at your full finances can say whether it fits. A trust deed can suit some people who have a regular surplus income but cannot repay their debts in full within a reasonable time. The Accountant in Bankruptcy (AiB), the Scottish agency that supervises trust deeds, says other options might be better if you could repay in full, have a lot of equity in your home, or doubt you could keep up payments for 4 years.
This page will not tell you what to do. It sets out questions to ask yourself, so you know what matters before you talk to anyone. For a side-by-side list, see trust deed pros and cons. Free, impartial advice is available from the services in free debt advice in Scotland.
What should you ask yourself first?
These are the questions an adviser is likely to explore with you. There are no right or wrong answers, but each one can point towards or away from a trust deed.
1. Could I repay everything I owe within a reasonable time?
A protected trust deed is only possible if your payments over the payment period would come to less than your debts. If you could clear everything, AiB says the Debt Arrangement Scheme (DAS) might be better. In DAS, interest, fees and charges are frozen, and a money adviser cannot charge you for setting it up.
2. Could I keep up a monthly payment for 4 years or more?
A trust deed usually lasts 48 months from the day you sign. Think about your job security, health and household over that time. AiB says that if you do not think you could keep up payments for 4 years or more, bankruptcy (called sequestration in Scotland) might be a better choice.
3. Do I own a home, and is there equity in it?
Equity is the value left after your mortgage. In a trust deed your share of it has to be dealt with, for example through a lump sum or extra monthly payments that can run on after the 48 months. AiB says that if you have a lot of equity, refinancing might work instead.
4. Where does my income come from?
No contribution can be taken from Universal Credit or other benefits. If your income is benefits only and you own very little, the Minimal Asset Process (MAP), a simpler form of bankruptcy with no application fee, may be worth asking about.
5. What kinds of debt do I have?
You need to owe at least £5,000. Student loans, court fines, debts from fraud and secured debts such as a mortgage are not written off, and nor is anything you borrow after signing. If most of what you owe falls into those groups, a trust deed may do less for you.
6. Am I expecting money in the next few years?
An inheritance, compensation or other money you receive in the 4 years after signing usually goes to your trustee for your creditors.
7. Would a public record cause me problems?
A trust deed affects your credit rating for 6 years from the date it begins, and your name goes on the Register of Insolvencies, which anyone can search for free, until 12 months after it ends. Some employers, most commonly financial institutions, do not allow staff to have a trust deed, and it may restrict you acting as a company director.
8. Am I facing enforcement right now?
An earnings arrestment (money taken from your wages by a creditor) only stops once a trust deed is protected, some weeks after signing. A moratorium on diligence can pause most enforcement for 6 months while you get advice, whichever option you choose.
9. Am I comfortable with the fees?
A trustee is paid a fixed fee, a percentage of what they collect and outlays, and AiB charges statutory fees. These come out of your payments, so they do not change what you pay, but they reduce what your creditors receive.
Who can a trust deed suit, and who does it usually not suit?
| A trust deed can suit people who | It usually does not suit people who |
|---|---|
| Owe £5,000 or more and have a connection to Scotland | Owe less than £5,000 (a protected trust deed is not possible) |
| Have a regular surplus income, but not enough to repay everything within the payment period | Could repay their debts in full over a reasonable time |
| Can realistically keep up payments for 4 years | Doubt they could keep up payments for 4 years or more |
| Owe mainly debts a trust deed can write off, such as credit cards, loans and overdrafts | Owe mainly debts that are not written off, such as student loans or fines |
| Have little or no equity in their home, or can deal with the equity | Have a lot of equity that refinancing might release instead |
| Work in a job that does not restrict insolvency | Have income only from benefits and few assets, where MAP may fit |
Even if the left-hand column describes you, a trust deed is still only one option. An adviser needs to look at your full situation and compare it with the others.
What are the other options?
Each option in Scotland has its own trade-offs. None is better in general.
| Option | How it works | Can suit people who | Things to weigh up |
|---|---|---|---|
| Protected trust deed | You pay your surplus income to a trustee, usually for 48 months. If you complete it and are discharged, the included debts that are left are written off | Have a surplus income but cannot repay in full in a reasonable time | Fees, 6 years on your credit file, a public register, your home equity, and sequestration if it fails |
| Debt Arrangement Scheme (DAS) | You repay your debts in full through a debt payment programme. Interest, fees and charges are frozen and written off on completion | Could repay in full over a reasonable time | Debts are repaid, not written off. The average programme lasts about 6 years, and it can be revoked after 3 missed payments |
| Sequestration | Scotland’s form of bankruptcy. Discharge usually comes after 12 months | Could not keep up long-term payments | £150 fee unless waived, contributions can run for 48 months, and restrictions such as not being a company director |
| Minimal Asset Process (MAP) | A simpler bankruptcy for debts of no more than £25,000 and assets of no more than £2,000, with no fee | Have low income, few assets and no property | Strict limits, and some restrictions last 6 months after discharge |
| Debt management plan | An informal arrangement to pay creditors what you can afford | Need flexibility or have a short-term problem | Not legally binding. Creditors may not freeze interest and may keep contacting you |
| Moratorium on diligence | A 6-month pause on most enforcement | Need time to get advice | Does not freeze interest or deal with the debts, and wage arrestments already in place carry on |
For closer comparisons, see trust deed or DAS, trust deed or sequestration and choosing between the Scottish debt solutions.
Want to talk your options through? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.
May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.
What happens if you choose a trust deed and it goes wrong?
This is worth thinking about honestly, because a trust deed cannot simply be cancelled once signed.
If a trust deed fails. AiB says that if a trust deed fails because you do not make your payments or co-operate, creditors can start asking for payment again and may add fees, and you will not get back any money you have paid. Your trustee can also petition for your sequestration.
Circumstances can change over 4 years. Your payment is reviewed at least once a year and can go down if your income falls, and there is a legal route to early discharge where circumstances outside your control mean you cannot carry on. But these depend on telling your trustee early. See what happens if a trust deed fails.
Where can you get a second opinion?
Before any trust deed is signed, the insolvency practitioner must explain all the debt options open to you, with the advantages, disadvantages and likely costs of each, tailored to your situation. You must then have at least 3 calendar days to think.
You can also take your questions, and any paperwork, to a free adviser such as Citizens Advice Scotland, MoneyHelper, StepChange or National Debtline. Their advice is free. If your answers to the questions above leave you unsure, that is a good reason to get more advice, not a reason to rush.
Official sources
Common questions
Should I get a trust deed?
This site cannot tell you, and nobody should decide for you without looking at your whole financial situation. A trust deed is one of several legal options in Scotland. A free money adviser can compare it with the Debt Arrangement Scheme, sequestration, the Minimal Asset Process and informal plans, and an insolvency practitioner must explain every option to you before you sign.
When is a trust deed a bad idea?
The Accountant in Bankruptcy's information document names three situations where another option might be better: if you could repay your debts in full over a reasonable time, if you have a lot of equity in your property, or if you do not think you could keep up payments for 4 years or more. It also cannot be protected if your debts are under £5,000.
Does a trust deed write off all my debt?
No. If a protected trust deed is completed and you are discharged, the debts included in it that are left are written off. Some debts are never written off, including student loans, court fines, debts from fraud and anything you borrow after signing. Discharge also depends on you keeping to the terms and co-operating with your trustee for the whole trust deed.
Will a trust deed stop my creditors chasing me?
Once a trust deed is protected, AiB says creditors cannot collect debts from you, although they can still send documents such as annual statements. Before protection, creditors can still act, and an earnings arrestment only stops once the deed is protected. If the trust deed later fails, creditors can start asking for payment again and may add fees.
Related guides
- Trust deed pros and cons The advantages and disadvantages of a trust deed, set out side by side.
- Who can get a trust deed? The legal conditions for a trust deed, and when it may not be the right fit.
- Trust deed or DAS? The Debt Arrangement Scheme and a protected trust deed compared side by side.
- Trust deed or sequestration? A protected trust deed and bankruptcy in Scotland compared side by side.