Should you enter a bankruptcy or Trust Deed? This is a question a lot of people in debt ask us at Debt Support Trust but it will depend on a number of factors. The Trust Deed in Scotland and Bankruptcy can be similar – they are both insolvency solutions – but they have key differences.
Wrongly entering either solution can have serious consequences for your future so it’s important anyone considering these debt solutions fully understands them and seeks debt advice first.
When To Enter Bankruptcy
In some instances entering bankruptcy can help people deal with their debt quicker and easier than entering a trust deed, these would include the following scenarios.
- Unemployed: If someone is unemployed and the only source of income is state benefits, they should consider entering bankruptcy to resolve debt problems. A trust deed can only be entered by someone who has an income i.e employment, private pension, etc. While it is possible for someone who is unemployed to enter a trust deed through a third party contribution, it may not be the correct advice.
- Low/No Assets: If someone has low or no assets, along with a low disposable income, the consequences of entering the bankruptcy will be reduced. When someone with an asset enters bankruptcy the trustee is obligated to realise any equity and use any proceeds to pay the debt. If someone doesn’t have a house the risk of them losing a property won’t exist.
- Failed Trust Deed: If a trust deed isn’t accepted by creditors or a person fails to continue paying their trust deed, entering bankruptcy may be the only option left.
- Debts Above Manageable Level: Although someone may be suitable for bankruptcy it doesn’t necessarily mean they should enter it. If someone can afford to make their monthly contractual payments they should continue to do so. Bankruptcy will have a negative impact on your credit file.
Although these factors are important, every person’s circumstances are different and the financial situation should be carefully reviewed by a debt adviser before any action is taken. For example you may be unemployed but have a property where the mortgage is fully repaid. If the property is valued at £180,000 and the unsecured debt is £20,000 then neither a Trust Deed or Bankruptcy would be the right advice. There are other debt solutions you could consider.
When To Enter A Trust Deed
A trust deed allows people to avoid bankruptcy and the consequences that can come with it, while recouping more money for the creditors. The following factors should be considered before entering a trust deed in Scotland.
- Employed: Anyone entering a trust deed should be employed or have a source of income other than benefits. Employment is one of the first factors for when considering whether someone is suitable for a trust deed.
- Disposable Income: It’s important anyone entering a trust deed is able to meet the monthly contribution so they will need to have a disposable income. This is money remaining after essential expenditure has been taken into consideration.
- Debt Level: The minimum level of debt someone should have before considering a trust deed is about £6,000 although there’s no set figure.
The best way to assess the best solution to resolve any debt problem is by speaking to a charitable debt advice organisation, such as Debt Support Trust. You can call a friendly adviser on 0800 085 0226.
Qualified debt advisers will be able to determine the best route out of debt by completing a debt questionnaire and they can fully explain each debt solution.