Wednesday, July 6, 2022

10 Things You Need To Know About Trust Deeds

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If you are unable to repay all the debts you have taken, you may think that filing for a bankruptcy may be the only way out. But it is not. You can set up a trust deed and avoid being declared bankrupt by the court. A trust deed is basically an agreement between you and your creditors where all your debts are consolidated into a single payment divided into monthly installments. Once the deed is signed by both sides, you will only be required to pay this single monthly payment.

The biggest advantage of a trust deed is that the monthly payment is not decided based on whether you can pay off all the debt. Instead, it is decided on the basis of whether you can afford to pay the monthly installments or not. The deed will remain active for a set number of years, at the end of which all the remaining debt can be written off by the creditors.  If you need trust deed facts explained by an expert search out a local or online company to help you understand what a trust deed is

Qualifications

In order to qualify to apply for a trust deed, you will have to prove that you owe at least 5000 pounds to your creditors and are not in a position to repay it back. And in case you wish to be represented by an insolvency practitioner, the required debt climbs to 8000 pounds. Plus, you will also need a minimum of two debts. Coming back to trust deeds, you won’t be able to set them up if your income is solely comprised of benefits. Couples are allowed to start a trust deed. The only difference is that they will usually be required to show double the surplus monthly income than what is expected of a single person.

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Interest Freeze

When the creditors determine that you are truly unable to pay off their debts, they will usually agree to the trust deed. And when that happens, all debt that you owe to the creditors up until that moment will be frozen and no more interest will be charged to it. For example, imagine that you owe 6000 pounds to various creditors and pay 60 pounds as interest every month. When a trust deed is set up, you won’t have to pay the 60 pounds interest anymore. Instead, you will only be required to pay the outstanding debt of 6000 pounds.

Debts Included

Not all debts are included in a trust deed. Some are kept out and do not come within the purview of the deed. A trust deed will usually not include any student loans. So, if you have been thinking of applying for a trust deed for easy repayment of your student loans, you can forget about it. Similarly, any fines or penalties you have incurred directly from a court will also not be included. And if any particular debt is secured by the creditor’s right over your property, then those debts too will not be considered for the trust deed.  

Assets

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Almost all your assets, including your home, will be transferred to a trustee who will hold it for the period of repayment as mentioned in the deed. As long as you pay your monthly installments on time, the assets will be left untouched. Once you start failing to meet the monthly payments, then the assets might be sold off as per the instructions of the creditors. Now, you are allowed to keep a few assets with you which are deemed to be critical for your daily life. For example, if you use your vehicle to get to work daily at a location situated far away from your home, then the vehicle will usually be exempted from being pledged as a part of the deed. However, if you do not have any assets, you can still set up a trust deed. On the flipside, you need to guarantee a bigger monthly payment to make the creditors agree to your request of a zero asset trust deed.

Exception For Home

Generally, your home will also be an asset that will be transferred to the trustee when the deed is formed. However, there is a way you can avoid this and make the home not be considered as an asset. This is done by using section 10 trust deeds. But to use these deeds, you need to meet certain special conditions. For one, your home must have a minimum of one secured creditor. Secondly, the creditor must agree never to make. If these two conditions are met, you will generally be able to set up a section 10 trust deed and avoid having your home be treated as an asset.  However, do keep in mind that you need to continue paying off the secured debt the regular way. And in case you fail in doing so, you might actually end up being bankrupt.

Protected Trust Deed

Just having a trust deed set up does not mean you can breathe easily. The truth is that the trust deed only binds the creditors who have agreed to your terns. Those creditors who have rejected it can easily take legal action against you, including moving for bankruptcy charges against you. This can be avoided by making sure that the trust deed is ‘protected’. Once done, even the creditors who have not agreed to your terms can never trouble you with any legal action. And if you are wondering as to how to make a trust deed protected, it is a fairly simple process.  The trustee will only have to send a notice to the creditors informing them that the deed is to be considered as protected. In order to keep your deed unprotected, half the creditors are required to disagree with it. If any creditor does not reply to the notice of the trustee, it will be considered as an agreement to the terms.

After Signing

When the trust deed has been set up, you will be required to comply with all the demands of the creditors which are in line with the terms of the deed. However, you don’t have to be in touch with them. Instead, the trustee will deal with the creditors for you and will act as an intermediary between the two parties. You must keep in mind that the trustee is not technically on ‘your side’. If they feel that you are unable to hold yourself to the terms of the deed, then they can file a bankruptcy against you so as to protect the interests of the creditors. But as long as you pay the agreed monthly installments on time, such things will not happen.

Credit Rating

When your trust deed is deemed to be protected, it will be shown in a public register known as the “Register Of Insolvencies”. This information will be held on by the credit rating agencies for several years, normally spanning about six months. As such, you will have a tougher time getting any additional debt during this period as prospective creditors will shy away from lending money to someone who has set up a trust deed. And even if they agree to lend you money, you may have to pay a much higher interest in order to make the debt more profitable for the prospective creditor.

Release From Trust Deeds

Typically, you will be released from the obligations of the trust deed in about four years from the date of signing it. However, some deeds can last for longer, thereby keeping you tied down with the agreement. Plus, whether the deed is protected or not is also important. In case it is protected, your release will be binding on all the creditors equally. However, if your trust deed is unprotected, then your release will only be binding to the creditors who had agreed to the deed.

After Being Discharged

Once you are discharged from the deed, the assets will still remain under the control of the trustee who can sell it off to repay the debts owed to the creditors. In fact, if the trustee can continue using your assets to generate cash to pay back to the creditors, they have the full right to continue with the deed. However, if you have set up a section 10 trust deed, then your home will be safe from such activities since it hasn’t been considered as an asset as per the deed. Talk with the trustee at length about what happens after you are discharged so that you can set up the terms of the deed in a way that is favorable to you.

In case you are not happy with the behavior of your appointed trustee, then you can complain about them with the professional body to which they belong. If the investigating committee finds that your accusations have some merit, they will take the appropriate action to resolve the issue. But in most cases, there shouldn’t be much of a problem between you and the trustee. Just focus on making the payments on time each month, and you can rid yourself of all obligation in a few years.

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Sara Revonia
Sara Revonia
Entrepreneur, Speaker, Author, and Mom. Sara Revonia’s articles are about business, life, and Entrepreneurship.
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