Trust Deeds vs Sequestration
Which debt solution is better for you?
If you live in Scotland and are struggling to manage your debts, it’s important to realise you are not alone and there are options available.
Two of the most common debt solutions used by our customers are Trust Deeds and sequestration. Both are forms of insolvency that involve a large amount of debt write-off – ideal for those who are really struggling to make their debt repayments each month.
While both these debt solutions have something to offer, they are quite different.
We’ve put together a comparison of the two below, so you can familiarise yourself with what they are, and discover whether they might be an option for you.
|Duration||4-5 years||Usually discharged after 1 year, but with the possibility of a Debtor Contribution Order for 4 years|
|Effect on business||Can continue to trade||May not be able to continue to trade|
|Fees/costs||Trustee’s fees/costs are funded from the monthly payments into the Trust Deed||The cost to apply for your own Sequestration is currently £200|
|Assets||Assets may be realised||Assets at risk|
|Interest/charges||Guaranteed to be frozen||Guaranteed to be frozen|
|Creditor legal action||Creditors cannot take legal action||Creditors cannot take legal action|
|Credit Rating||Stays on credit file for 6 years from the date the Trust Deed is approved, or until the Trust Deed ends – whichever is the later||Stays on credit file for a maximum of 6 years|
|Debt write-off||Some debts are written off||All debts are written off|
|Public Register||Trust Deeds are listed on a public register||Sequestrations are listed on a public register|
Trust Deeds normally last for 4 years, but in some circumstances they may be extended to 5 years. You make one monthly payment for the agreed time period, and as long as you adhere to all the conditions of the Trust Deed, your remaining unsecured debts will be written off at the end.
In Sequestration, you could be discharged from your debts after just one year. However, if you are required to make monthly payments (e.g. because you have a surplus income), there is a maximum payment period of 4 years.
Fees & charges
When you file for sequestration you will be required to pay an upfront application fee. There is currently an application fee of £200.
PayPlan Scotland don’t charge anything upfront. Once your payments have been agreed and your Trust Deed starts, they will deduct their fees from your agreed monthly payment amount. This means you don’t pay any additional charges – the fees come from the money you’ve already agreed you can afford to pay each month.
As long as your Trust Deed is ‘protected’, your unsecured creditors will not be able to add any further charges to your debt. Interest will also be frozen. The same principle applies to sequestration.
However, if your Trust Deed is not ‘protected’, further interest & charges could still be added, and further legal action could be taken against you. 95% of Protected Trust Deeds applied for via PayPlan Scotland are approved, so you don’t have to worry about that too much.
Business advantages and disadvantages
If you are self-employed, in a Trust Deed you will be able to continue to trade, – assuming your business is viable.
However, in sequestration, it is usual practice for any business assets of excess value to be sold, and any employees dismissed – which may make it difficult to continue to trade.
In sequestration, you are not allowed to hold certain positions – such as Company Director or Charity Trustee. Your bank account is also likely to be frozen in sequestration, which means you won’t be able to use it – whereas it is a possibility you can keep using your bank account in a Trust Deed, as long as you keep within any agreed overdraft limits.
Lastly, there is a public register of both Trust Deeds and sequestrations, which can be accessed online.
Both sequestration and Trust Deeds have advantages and disadvantages. Both are relatively quick debt solutions, as they involve a proportion of your debt being written off – but sequestration is generally the quickest of the two, and it could see you debt-free in just a year.
However, Trust Deeds are seen as an alternative to bankruptcy. While they can be a longer solution than sequestration, a Trust Deed can protect your assets, and allow you to keep trading if you run your own business.
If you are struggling with your debts and looking for a viable solution, PayPlan will go through all your options with you.
We will look at your finances, go through each available solution, and help find the best outcome for you.
Contact us if you need help – all our advice is FREE and all our debt advisers are fully trained and highly professional.