A Trust Deed is a voluntary agreement between an individual who is unable to pay his or her debts and a licensed Insolvency Practitioner (the Trustee). It allows you to pay as much of your debts as your assets and your monthly surplus income will allow. Trust Deeds normally last between three and five years.
The role of the Trustee is to present your Trust Deed proposals to your creditors and then administer the Trust Deed to its completion.
As long as no more than half (in number) or a third (in value) of your creditors object to your Trust Deed, then it will become protected. Once the Trust Deed is protected, your creditors cannot take further action against you or make you bankrupt. Once you've successfully completed your Trust Deed, you’ll be free from all debt included in it.
While the terms of a Debt Management Plan are informal, and creditors may increase their demands on you at any time, with a protected Trust Deed, interest and charges will be frozen for the duration of the Trust Deed.
Another alternative solution in Scotland is the Debt Arrangement Scheme (DAS). This is a government-run debt management tool that allows you to repay your debts through a Debt Payment Programme (DPP). With a DPP, you can pay off your debts over an extended period of time, with protection from your creditors. A DPP can last for any reasonable length of time and, if approved, all interest, fees and charges on the debt will be frozen, and you'll be protected from any legal action by your creditors. It's also possible to change the amount you pay to the DPP, or allow up to a six month suspension of payments if you suffer a temporary period of reduced income. However, the DPP will last until your debts are cleared and could be revoked if you have missed two payments and a third is due. If it is revoked, you’ll be liable for all interest, penalties and other charges that would have been payable had the DPP not been approved.
The process of a Trust Deed is not as formal as Sequestration (bankruptcy). Although it is a legally-binding agreement, there's no court involvement in setting up the process. Once signed, you are committed to the terms of your agreement.