New Trust Deeds law means debtors can keep their homes, says debt solutions company Scottish Trust Deed

January 14, 2011 - On 15 November 2010 changes to the Bankruptcy (Scotland) Act 1985 were made to widen the scope of debt relief for the Scottish population struggling in debt.

Traditionally people have used the equity in their homes to repay unsecured debts, however with the credit crunch reduced the value of people's homes, giving them less flexibility to deal with their debts. Obtaining new loans at reasonable terms to release the equity has further compounded the problem.

Trust Deeds allows debtors to pay back a proportion of their debt over three years and then write off the remainder, making them a lifeline for people in serious financial trouble.  However, in the past for a Trust Deed to become 'protected' – a way of legally preventing creditors from chasing for money owed - all of the debtors assets would be passed to an Insolvency Practitioner for the benefit of creditors, even assets of little interest or value.

Many families have been forced from their homes into rented accommodation to release very little equity from their main residence, making it one of the biggest reasons for debtors shying away from having Trust Deeds despite being the only sensible financial option open to them besides sequestration.

The new amendments mean that as long as secured creditors have agreed not to claim for any debt under the Trust Deed, a debtor's main residence can be excluded from Trust Deeds when they become Protected.

A spokesperson for Scottish Trust Deed, said: "This is long overdue but extremely welcome news. No longer will debtors be forced from their homes for a very small gain for their creditors. Government research has shown the effects of homelessness are far-reaching and very damaging. It can lead to unemployment - severely affect someone's future employment prospects - and cause physical and mental health problems in family members. Children are also more likely to struggle at school, significantly reducing their future prospects too.

"But it's not just the families involved that are suffering. Homelessness puts additional strain on the public purse at a time when cuts and cost efficiencies are being made The average cost of providing temporary accommodation to a household made homeless was found to be around £5,300 a year in 2007, and these figures will have undoubtedly risen since then."

The change in law will also have other welcome effects. It will reduce the administration costs charged by Insolvency Practitioners and there will be no fees related to consultation over what to do with the property, negotiating with the debtor, or costs of sale on the open market.

"The new changes to the law will provide reassurance for debtors and result in temporary accommodation savings, less burden on the tax payer, and contribute to the economic recovery and a wealthier and fairer Scotland. Everyone will now have the opportunity to become debt-free and rebuild their finances using Trust Deeds," concluded the spokesperson.