Scottish trust deeds enable a debtor for making a formal and convenient proposal to the creditors for a time bound clearing of debts. Such a proposal is made only by the debtor who is no longer able to pay off debts and wants to avoid legal action and bankruptcy. Scottish trust deed is not a loan and instead it is a legal process for an agreement with creditors to repay less than you actually owe to them.
There is a difference between a debt management plan and Scottish trust deed. While debt management offers a full payment to creditors in whatever duration, the trust deed is a legally binding proposal to the creditors. Through Scottish trust deed, a debtor makes a proposal to his creditors for clearing unsecured debts. The proposal from a debtor has to be drafted with the assistance of a licensed insolvency practitioner who is known as trustee. The trustee plays the role of an honest broker and makes it sure that the draft of the proposal is carefully crafted and is more realistic so that it can be accepted by both the debtor and creditors easily. Once the debtor approves the final draft of the proposal, the trustee sends a copy of the trust deed to each creditor. After the creditors have approved the proposal it is legally binding on them.
The trustee calculates a monthly repayment schedule which is prepared on the amount the debtor can easily afford to pay. The trustee while arriving at the affordable amount, makes it sure that the debtor has enough amount left with him for his daily expenses and for meeting an urgency. The repayment schedule and the monthly instalment amounts are clearly mentioned in the proposal to the creditors. Scottish trust deed is done for a specified period which is generally for three years. The advantage of the trust deed is that after the specified term is over, the remaining debts if any are written off.
Thus usually Scottish trust deed is done only on condition that the debtor has no disposal income for repaying unsecured debts. In other words the deed is applicable in a case where debtor has no surplus money after paying for living expenses. Therefore one can say that Scottish trust deeds are an alternative to bankruptcy and are called an informal bankruptcy.
One big advantage and attraction of Scottish trust deed for the debt ridden person is that when the trust deed is registered as protected, the debtor is fully safe from all legal action that creditors could have taken against him. Another attraction is that interest on the debts is frozen which means no further interest can be taken on the debts by the creditors. What is more the debtor is free of any queries and correspondences from creditors as these are now handled by the trustee.
No credit check is made for entering the trust deed. This is because the debtor will not be borrowing any money. Even if you have CCJs you can enter a trust deed. As far as the success of Scottish trust deed is concerned, only those creditors representing more than 33 percent of total debts can reject the deed. But to do so they must give their objections in writing within 5 weeks of receiving the trust deed.