In the last post I wrote about 11 consequences of signing a trust deed. In this post we will talk about how trust deeds actually work. If you have any problem, please write a comment – we will try to answer.
Trust deed is actually a voluntary agreement between the debtor and creditors under the supervision of a trustee (must be a qualified insolvency practitioner). Here the trustee plays a major role as the right of debtor’s legal possessions is transferred to the trustee and he or she executes the whole process. If necessary the trustee may sell debtor’s possessions to pay the creditors.
Depending on the financial status of the debtor, the trustee drafts a trust deed. While drafting the Trust Deed the trustee enquires and validates debtor’s total earnings. He will calculate debtor’s monthly expenses and the basic cost of living. This will help him to finalize an amount that the debtor can afford to repay debt every month. The repayment amount is calculated on how much you can pay for every £1. For example, if the trustee finds that the debtor can afford to repay 30 pence for £1 he will draft the proposal accordingly and present it to the creditors.
After that the trustee publishes the proposal on the Edinburgh Gazette to inform all the creditors. The creditors get five weeks of time to decide and object on it. As long as a creditor or creditors who have lent more than 33% of the total amount do not object, the proposal is considered as a legal binding to all the creditors. If no creditor objects within 5 weeks, the deed is treated as approved and protected. Normally, creditors accept the deed if you offer a minimum of 10 pence for every £1.
A protected trust deed,
- prevents creditors to take any other action to recover money. This rule holds true as long as the debtor abides by the rules set by the trust deed.
- prevents the debtors from going in for other repayment methods like bankruptcy or another debt management plan.
After the Trust Deed is accepted by the creditors the trustee begins further proceedings and he will deal with the creditors from then on.
The rules of a Trust Deed are fixed and the trustee strictly executes them so that the debt is paid off properly. The trust deed normally runs for 3 years and after that all the debts are written off.
Hi Miranda,
Thank you for a splendid article on Trust Deed. I am Claire and one year back I entered a trust deed. It was all going fine until I became jobless a couple of months ago. Now I am totally cash strapped. I have no idea how will I manage my basic expenses and pay for the trust deed at the same time. I do not have any savings and I am desperately looking for a job. Now my question is, can I postpone my trust deed payments till I get a suitable job?
Please Help!!
Hi Claire,
It is not desirable to postpone payments of your Trust Deed. However, if a person is made unemployed or redundant, then the Official Receiver reassess and amend the trust deed according to the borrowers financial condition. Sometimes you get an extended time to pay off the debts. So, visit your Official Receiver as soon as you can.
All the best!