If you live in Scotland are are struggling with unaffordable debt, you might have considered a Protected Trust Deed, which is a legally binding debt solution where you repay a portion of your unsecured debt in exchange for the rest of your debt being written off.
When you enter into a Trust Deed, you’ll make monthly payments towards your debt over a set period (usually four years) and your creditors (the people or businesses you owe money to) will no longer be able to contact you or add interest or charges to your outstanding balance.
This article will explore Trust Deeds in more detail, including what happens when you come to the end of your arrangement, how to take steps towards a more stable financial future, and what to expect from life after debt.
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What is a Trust Deed?
A Trust Deed is a formal debt solution designed for people who find themselves struggling with unaffordable debt and are in a position to make regular contributions towards what they owe.
Because they are legally binding, Trust Deeds must be managed by a licensed Insolvency Practitioner (IP) who will go on to become your Trustee and manage your financial affairs for the duration of your arrangement.
The main aim of a Trust Deed is to consolidate your unsecured debts (debts covered by the Consumer Credit Act 1974) into a single monthly payment. This includes personal loans, rent arrears, and overdrafts.
Trust Deeds don’t, however, cover secured debts (secured loan, mortgage, car loans etc.) or student loans so you’ll still be expected to repay them separately.
When you enter a Trust Deed, any existing payment schedules will be cancelled and your new monthly payment amount will be based on a review of your income and expenditure.
There are certain eligibility criteria you must meet before you can qualify for a Trust Deed. For example, you must be a resident of Scotland (for at least six months), have unsecured debts of over £5,000, and have a regular income that allows you to make monthly payments towards your debt.
What is a Protected Trust Deed?
When the majority of your creditors agree to the terms of your Trust Deed, it gains protection status and becomes a Protected Trust Deed.
With Protected Trust Deeds, your creditors can’t contact you for payment, take legal action against you, or add interest and charges to the debt. This can allow you to focus on repaying your debt without your debt level rising.
Once your Trustee has drafted your proposal, they will send it to your creditors and give them five weeks to voice their objections.
If no objections are raised within this time, it will be assumed that they agree with your proposal and your Trust Deed will go ahead as if this is the case.
How will a Trust Deed affect my credit rating?
Like most debt solutions, including a Debt Arrangement Scheme (DAS) and a Debt Relief Order (DRO), a Trust Deed will negatively affect your credit rating.
From the date your Trust Deed starts, it will be visible on your credit file from each of the main credit reference agencies for six years. Because most arrangements last a minimum of four years, this means your credit score will be affected for at least another two years after you’ve been discharged.
During this time, you’ll find it difficult to obtain further credit and may have to wait until your credit score has significantly improved before being able to successfully apply for a mortgage or a loan.
This is because a Trust Deed on your credit file indicates to lenders that you’ve struggled with debt in the past and could potentially default on any future credit agreements.
However, it’s important to remember that your credit rating will already be damaged from the missed payments or defaults that led to the Trust Deed in the first place.
What happens after Trust Deed ends?
Completing a Trust Deed is a significant milestone that proves you have stuck to the terms of a formal debt solution for four years and are capable of handling your finances responsibly.
Here are some of the things you can expect after your Trust Deed ends:
You’ll be officially discharged
Before you can exit a Trust Deed, your Trustee will decide whether you should be discharged. This will typically happen if you’ve stuck to the terms of your arrangement and made payments as agreed.
Once your final payment has been made, your Trustee will apply to the AIB to have you officially discharged. When this has been approved, you’ll receive a ‘form of discharge’ or ‘letter of discharge’ and your creditors won’t be able to chase you for any of the debts that were included in the arrangement.
Your remaining unsecured debt will be written off
Another thing that happens after a Trust Deed ends is your remaining unsecured debt being written off.
This means you won’t be required to make any more payments and can move on from your debts having only repaid a portion of what you owe.
Your entry will be removed from the register
Once the AIB have been informed, they will update their records to ensure your entry is removed from the Register of Insolvencies and there is no public record of your Trust Deed.
Remember, your Trust Deed will stay on your credit file for six years from the date it was approved. This means your credit score is likely to remain affected for another two years after you’re discharged from your arrangement.
Your Trustee will be released from their duties
Now that you have been officially discharged from your arrangement, your Trustee will be released from their duties and you’ll be sent a letter confirming the successful completion of your Trust Deed.
This letter serves as an official document and can be used to confirm that you’ve met all your obligations and no longer owe anything towards any of your creditors included in the arrangement.
You can move on with your life
With no more financial obligations, you’ll be free to move on with your life and start afresh (unless you have any other debts).
This is also a great time to start taking steps to improve your credit score.
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What is life like after a Trust Deed?
If you’re still making payments towards your Trust Deed, you may be wondering what life will look like after you’ve made your final payment and have been discharged from your arrangement.
Upon completion of your Trust Deed, it’s important to focus on managing your finances effectively and rebuilding your credit rating. Your credit score is likely to remain affected but this doesn’t mean you shouldn’t take steps to gradually improve it.
You must also ensure you’re making regular payments towards any other financial obligations you have, such as utility bills, rent or mortgage payments, and council tax. Demonstrating that you can reliably make these payments will help to slowly improve your credit score.
If you can, consider building a small emergency fund to prevent you from falling into debt if unexpected costs arise down the line. Debt can happen for several reasons and all it takes is one financial emergency to send your finances spiralling.
Gradually applying for new credit can also help. However, it’s important to start with something small, like a mobile phone contract or a credit card designed for people with poor or no credit, and remember to repay in full and on time each month.
Budgeting will also be an essential part of your life after a Trust Deed. A realistic and well-planned budget can help you manage your finances effectively, ensuring you live within your means and, more importantly, avoid falling back into debt.
How can I improve my credit score after a Trust Deed?
Having to live with a damaged credit score after a Trust Deed can be disheartening, but there are various things you can do to gradually improve your credit score, such as:
Register to vote
Registering to vote can help lenders confirm your personal details, such as your name and address, when you apply for credit.
This is to help them recognise identity theft and fraud and verify that you are who you say you are, which in turn increases your credit score.
Make payments in full and on time
Proving that you can make payments in full and on time is one of the key determining factors when it comes to your credit score.
Spending a minimum of four years making Trust Deed payments should mean you have no problem making regular payments.
Avoid further debt
In the first year after leaving your arrangement, you should avoid further debt and only take out further credit if you need to.
Making too many applications for credit within a short space of time can make lenders think you’re overly reliant on credit and therefore pose more of a risk.
Check for errors
Most people assume that the information listed on their credit report is correct and up to date, but this isn’t always the case.
Regularly check your credit file for errors and report them as soon as possible to prevent your credit score from being unfairly impacted.
Other considerations
Even though completing a Trust Deed frees you from the debts included in it, it’s essential to be aware of its impact on future borrowing.
It might be more challenging to access certain financial products for a while, given the note on your credit report.
Continually updating your credit file after completion of a Trust Deed is also important.
Additionally, the process of going through a Trust Deed can serve as a valuable lesson in financial management. Use it as a stepping stone towards a more secure financial future.
Conclusion
The successful completion of a Trust Deed is a significant step towards resolving financial difficulties and should be celebrated. It provides a fresh start, allowing you to move forward and begin rebuilding your financial stability.
However, while there may be short-term impacts on your credit, the long-term benefits far outweigh them. With careful financial management and good credit behaviour, you can start to rebuild your credit score and work towards a brighter financial future.
The sooner you take steps to improve your credit score, the sooner you can start to move on with your debts and enjoy a life free from money worries.
