When it comes to categorising debt types then you’re likely to hear the words ‘unsecured debt’ and ‘secured debt’.

What’s the difference between ‘unsecured’ and ‘secured’ debts?

Unsecured debts aren’t ‘secured’ on anything per se.  As such, creditors can’t ask for anything ‘specific’ back (other than the amount owed).  This differs from secured debt since a secured debt is specifically attached to something – for example, a property or a vehicle.  So, if you defaulted on a secure debt then your creditor could ask for their security back; whereas they don’t have the same rights on anything unsecured.

Examples of unsecured debts include credit cards, store and charge cards, overdrafts, payday loans and catalogue debts.

Examples of secured debts include car loans or mortgages.

What types of debt can I include in a Scottish Trust Deed?

The vast majority of unsecured debts can be incorporated into a Trust Deed.  However, a Trust Deed can’t be used to pay off secured debts such as mortgages, second charges, HP agreements or car finance etc.  This is because they’re ‘secured’ on something specific.

In addition to secured debts you’ll also be unable to include any student loans, Court fines or debts accrued through fraudulent means.

What happens to the debt that I can’t include in the Trust Deed?

If there are certain debts that can’t be included in the Trust Deed then your advisor will advise you on these separately.  If they can’t be incorporated then you’ll have to make separate arrangements to repay these and of course, that repayment amount must be taken into consideration when it comes to assessing your affordability for the Trust Deed repayments.  This means that you must be able to pay both the Trust Deed repayment together with any other debt types.  You can’t simply ignore them because they can’t be included in the arrangement.

What happens if I don’t have any spare cash left over?

If you have insufficient funds to repay your outstanding liabilities then you won’t be able to enter into a Trust Deed and your advisor will give you advice on other options, such as bankruptcy.

What happens if my creditors don’t agree to my proposal?

If the required majority of your creditors don’t agree to your monthly proposal then your trust deed will be ‘unprotected’.  This means that it isn’t legally binding on anyone and your creditors will still be able to pursue you for any outstanding amount.  They can also take whatever legal action they see fit and can even apply to make you bankrupt.

Where can I get further information?

If you need more specific advice on what you can – and can’t – include in your proposed scottish trust deed then there are lots of places you can go to for advice.  It’s important that you get impartial and independent advice on any concerns you might have and are completely clear on what you might not be able to include.  For those with a large amount of secured debt then a Scottish Trust Deed might not be the best debt management solution.

 

Published by scott jack