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Could a Trust Deed help me to avoid bankruptcy?

A Scottish Trust Deed could help you to avoid bankruptcy - if you're eligible for it.

How can it help?

A Trust Deed can help by reducing the amount you pay towards your unsecured debts each month to an affordable level. At the successful end of a Trust Deed (usually after four years) any debt remaining in the Trust Deed would be written off. By reducing your monthly payments and writing off a portion of debt, a Trust Deed could help you to avoid bankruptcy.

You would work out how much you can afford to pay into your Trust Deed with a qualified Insolvency Practitioner. If your lenders accepted these new payments, your Trust Deed would become protected. This means that you'd be legally protected against action from your unsecured lenders and interest and charges on your debts would be frozen.

Click here if you want to know more about Trust Deeds.

Who can it help?

Not everyone can avoid bankruptcy with a Trust Deed.

To be eligible for one, you'd need to be struggling with your unsecured debts of at least £5,000 or joint debts of £10,000, As with bankruptcy – you will also have to be in doubt about whether you'd be able to pay them back in a realistic timeframe -.

A major difference between bankruptcy and Trust Deeds, however, is that to be eligible for a Trust Deed you need to still be able to commit to monthly payments. As a Trust Deed lasts for around four years, you'd need to be sure that you can keep up payments for that amount of time.

If you're not in a position to keep up regular monthly payments, you may well need to consider bankruptcy.

Are you eligible for a Trust Deed? Find out if you could qualify here.

Why is a Trust Deed preferable to bankruptcy?

Trust Deeds aren't always a better option than bankruptcy - but they can be for some people.

If you're a homeowner, for example, bankruptcy could require you to sell your home, whereas a Trust Deed may require you to release some equity in it. Though releasing equity may be a concern to homeowners, it's usually seen as preferable to selling your home altogether. You should note that, if you find you can’t release any equity, your Trust Deed may be extended by 12 months.

Both solutions will damage your credit rating for six years. Bankruptcy also has certain restrictions - for example, you can't hold certain jobs, like company director.

Click here for a comparison between Trust Deeds and bankruptcy.

Article Updated 12/12/2013