Trust Deed as an Alternative to Bankruptcy
A trust deed is an alternative to bankruptcy and is a legal arrangement to pay debts to your creditors through a trustee. By arranging a trust deed and adhering to the repayments, creditors cannot take any other legal action against debtors. There are a number of benefits to using a trust deed as opposed to filing for bankruptcy.
The Trust Deed ProcessBasically a trust deed is an arrangement made by a debtor to pay off creditors at the end of a three year period from monthly payments you have paid to the trustee. Creditors will normally be willing to accept a trust deed if the alternative is the debtor filing for bankruptcy. A trust deed will usually allow a creditor to see more of a return of their money than a bankruptcy would. There is also less expense and time spent arranging a trust deed than a bankruptcy court procedure.
The Set-Up ProcedureA trust deed can only be arranged through a Licensed Insolvency Practitioner who will act as a trustee. The debtor must provide the trustee with all of their financial details including all information on creditors. The trustee will then draw up a proposal to all creditors including how much the debtor is willing or able to pay and this will then be sent to creditors for approval. If all creditors agree with the proposal then debts will be divided between them at the end of the three year repayment period from the trust deed fund.
The Protected Trust DeedA protected trust deed means that creditors cannot take any further action to recover money from the debtor while the trust deed is in place and repayments are made. In some cases lenders may have the right to any equity that is available on a home. There are methods that can be used to avoid this procedure such as paying extra contributions or a buy back process. Secured lenders are not bound by the rules of a trust deed and may not be included in the trust deed arrangement.
Set-up Fees of a Trust DeedThere are usually no set-up fees involved in the trust deed process. The fees for the trustee will be agreed with the creditors and then dispensed from the trust deed account during the length of the arrangement. Debtors will not pay anything before the process has begun and a reduction in debts to lenders should be agreed to cover the trustee’s fees.
Benefits of a Trust Deed
- All correspondence from creditors will go through the trustee.
- Set length of repayment time.
- No public notices as there is with bankruptcy.
- No court appearances.
- Debtors can retain directorships of companies.
- No further action can be taken by creditors during the trust deed period.
- Debts are usually paid at a reduced rate with interest and charges frozen.
- All debt balances at the end of the three year period are written off if the trust fund amount does not clear the debts.
Defaulting on a Trust DeedIf one or two payments are missed then the length of the trust deed may be extended. Alternatively if the debtor is having trouble adhering to payments then the trust deed may be re-evaluated and payments may be lowered. However if there is continual non payment then the deed may be terminated and legal action by lenders may be sought to recover their money.
A trust deed is an excellent option if creditors and lenders are applying pressure for repayment of debts. Creditors will look on a trust deed favourably as they will still see some of the debt repaid and it is a binding agreement. Always take professional financial advice if considering the trust deed process or alternative repayment options.