When you enter into a formal debt solution like a Trust Deed, it’s natural to wonder about the implications it could have on your assets, such as your car and your home.
There are certain rules you must follow while you’re in a Trust Deed and, if you own property solely or jointly, it’s important to understand how your home could be affected before you agree to anything.
The good news is, it’s rare that you’ll be forced to find somewhere else to live and you should be able to sell your home if you want to.
Are you considering a Trust Deed?
Use our easy debt solution finder to find the best solution for your circumstances.
We have helped over 35,000 people in the Scotland with their debt
What is a Trust Deed?
Not to be mistaken for a Deed of Trust – which is a legal agreement stating how joint ownership of a property is divided and typically involves the transfer of a property to a title company – a Trust Deed is a formal debt solution where you repay your unsecured debts through a series of affordable monthly payments.
Trust Deeds can only be administered and managed by an Insolvency Practitioner (IP) who will go on to become the Trustee of your arrangement and liaise with your creditors on your behalf to distribute your monthly payments.
Most Trust Deeds last four years, but your term can be extended by a further 12 months if your circumstances change.
This, however, tends to be an exception rather than the norm and you’ll typically be discharged from your arrangement after 48 months as long as you’ve made monthly payments and stuck to the terms as agreed.
Trust Deeds gain protection status when more than 50% of your creditors (or the creditors to which you owe over a third of your debt) agree to the terms of your arrangement.
Under a Protected Trust Deed (PTD), your creditors can’t contact you for payment, take legal action against you, or add further interest or charges to your debt.
How will a Scottish Trust Deed affect my credit rating?
Like most debt solutions, a Trust Deed will your credit rating in several different ways.
From the date your arrangement is approved, your Trust Deed will be visible on your credit record for six years. During this time, your credit rating will be negatively affected and you’ll struggle to access most forms of credit, including a mortgage, personal loan, bank account, and phone contract.
Because most Trust Deeds last four years, this means your credit score is likely to remain affected for up to two years after you exit your arrangement.
So while a completed Trust Deed proves you’ve dealt with your debts, it doesn’t necessarily mean you’ll be able to borrow further credit straightaway.
However, as you make consistent payments towards your debt, your credit score will gradually improve and you’ll be able to exit your arrangement in a better financial position than you were in beforehand.
How will my home be dealt with in a Trust Deed?
Whether you’re partway through a Trust Deed or still assessing your options, you may be curious about how the home you live in will be dealt with and, more importantly, whether you’ll be able to continue living there.
However, the impact of a Trust Deed on your home depends on whether you own or rent, own your home solely or jointly, and how much equity you have in the property.
We’ve provided a quick guide to how your home is likely to be dealt with depending on your circumstances:
If you live in rented accommodation
If you live in rented accommodation, you don’t have to inform your landlord that you’re in a Trust Deed or even that you’re seeking any kind of debt advice.
However, it’s important to be aware that if you move into another rental property and a credit check is performed, your new landlord will more than certainly find out and this could influence their decision to let you live there.
If you’re the sole owner of your home
If you’re the sole owner of your home, you are not legally obliged to transfer ownership of the property to your Trustee and can request for it not to be included in your arrangement.
Despite this, your creditors may still object to your proposal – especially if you have equity in your home that could potentially be released to repay your debt.
If you own your home jointly
If you own your home jointly, your Trustee must get permission from both co-owners before they can put any formal arrangements in place.
They do, however, have the right to force the sale of your home if there’s a disagreement (e.g. your co-owner refuses).
The Trustee can then grant something known as a ‘division and sale’ which is when a co-owner of a jointly-owned property makes an application to remove the other co-owner from the partnership.
The property will then be sold and the other co-owner will be given their share of the sale while yours will go to your creditors to repay your debts.
If you have equity in your home
If there is sufficient equity in your home, your Trustee will consider this when reviewing your income and expenditure and you may have to release some as part of a one-off payment.
Another possibility is that your Trust Deed is extended by an additional 12 months to allow you to repay the extra money.
If you have little to no equity in your home
If you have little to no equity in your home (e.g. less than £5,000, the bulk of which will be taken up by legal fees), your Trustee may still require you to transfer your property to them.
This is because properties are often worth more at the end of a Trust Deed than they are at the beginning.
If this is the case, your home will be professionally valued by an estate agent as your term is coming to an end to help your Trustee arrive at an equity amount.
However, if the level of equity in your home is significantly less than £5,000, the Trustee may ultimately decide that it’s not worth including because remortgaging or altering the property’s balance would cost too much.
Here’s an example of how a Trust Deed can help
Let's say you owe...
Bank Loans
£11,152
Short Term Loans
£2,226
Phone Bills
£302
Credit Cards
£2,395
Store Cards
£648
Payday Loan
£1,408
Overdraft
£172
Total amount owed:
£18,303
Customer monthly repayments before and after taking a Trust Deed.
Reduced by 70%
Monthly payments are based on individual financial circumstances
Can I sell my house while in a Trust Deed?
While there are no rules stating that you can’t sell your house whilst in a Trust Deed, your Trustee must approve of the sale and the equity will likely have to go to your creditors to repay your debt.
Remember, your Trust Deed will be visible on your credit record for six years from the date it is approved.
During this time, you’ll struggle to get approved for most forms of credit, including a mortgage, and even if you are approved, you’ll face higher interest rates and stricter terms.
Because of this, most people prefer to wait until after their Trust Deed is complete and has been removed from their credit record before trying to sell their home.
This will make the process of getting a mortgage much easier and you’ll no longer need to seek permission from a Trustee to put your home on the market or be asked to put the money towards repaying your debts.
Can I remortgage my house while in a Trust Deed?
If you enter into a Trust Deed and already own a home, your Trustee will likely ask you to release equity from your home as your term is coming to an end (typically in the last six months of your arrangement).
As long as there’s enough equity (usually over £5,000), the money will be released as a lump-sum payment and used to repay your creditors.
Otherwise, you may have to extend your arrangement by an additional 12 months to make up the extra payments.
How can I avoid having to sell my home in a Trust Deed?
One of the biggest things people worry about when they enter into a Trust Deed is how their property will be dealt with.
However, there are several things you can do to avoid having to sell your home in a Trust Deed:
Pay in regular instalments
It may be an option to extend the term of your Trust Deed by 12 months and pay the equity through a series of further instalments. This will take your payment term from 48 months to 60 months.
If the property is jointly owned, your partner can also choose to contribute to the Trust Deed payments partly or fully.
Family members or friends invest in the property
Family members or friends can choose to invest in your property if they wish to help you out with repaying your debts.
However, they will need to raise the money on their own.
The joint owner partially invests in the property
In a jointly-owned home, the other co-owner can pay a portion of the equity as a lump sum payment, reducing your liability.
The joint owner buys your share of the property
When it comes to selling property held jointly, the co-owner can choose to buy your share of the property and remortgage in their name only.
Participate in a sell and rent back scheme
Sell and rent back schemes involve selling your home to a private firm, typically at a discounted rate, before renting it back.
However, while this may seem like a good option, it can be risky and it’s advisable to seek legal advice beforehand to ensure you know exactly what you’re signing up for.
Are you considering a Trust Deed?
Will I be forced to sell my home in a Trust Deed?
If your Trust Deed is protected, it may be possible to exclude your home from your arrangement. This means that its value won’t be taken into account when your assets are being assessed and you’ll never be forced to sell it.
However, you may only be able to exclude your home if you have little or no equity in the property and the rest of your assets will still be required to be handed over to your Trustee.
Even after you’ve entered into a Trust Deed, you must continue to make payments on your mortgage as normal – especially because secured loans can’t be included in your arrangement and therefore can’t protect you from your home being repossessed.
Conclusion
A Trust Deed is a legally binding agreement between you and your creditors to repay your debts over a set period (usually four years) with monthly payments based on affordability.
Before you enter into a Trust Deed, it’s crucial to familiarise yourself with what you can and can’t do and how your assets will be dealt with.
What happens to your home depends on a variety of factors, such as whether you rent or own, are a sole or joint owner, and how much equity you have.
