Can we do a joint Trust Deed?
If you and your spouse or partner are both struggling with debt you may be wondering whether it will be possible for you both to carry out a joint Trust Deed combining both your debts.
The first thing to understand is that there is no such thing as a joint Trust Deed. The agreement is an individual debt solution available in Scotland designed to resolve a single person’s debt problems.
However if as a couple you are both struggling with debts it may be possible for you each to carry out a Trust Deed at the same time which interlock together. This enables you to use a single household income and budget and make a single monthly payment towards both your Trust Deeds.
Having said that there are a number of potential issues with interlocking Trust Deeds which you need to be aware of.
Both Trust Deeds need to be accepted by your creditors
Because you are each proposing a Trust Deed, for the arrangements to interlock successfully, both of your separate Trust Deeds must be accepted by the creditors.
Generally speaking this is not a problem as a Trust Deed will be accepted (become protected) as long as not more than one third in value or a majority in number of your creditors object to it which would be unusual.
The problem can also be overcome if you have joint creditors as the acceptance of one Trust Deed by this creditor will almost certainly mean the acceptance of the other Trust Deed as well.
What if one party only has a small number of debts?
If one party only has one or two creditors who decide to object to the Trust Deed, then this would mean that this particular Trust Deed would fail.
In the same way, if the amount of debt owed by one party is relatively large but it is only owed to one creditor, this creditor might reject the Trust Deed again meaning that it is unable to start.
Generally speaking however these problems are rare. As mentioned above they are also generally not an issue if there are joint debts which in a sense bind both sets of creditors together.
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What if one party earns the majority of the income
If one person in the couple earns the majority of the income, then in general it will be their income which supports both the interlocking Trust Deeds. As with the other situations outlined above this is generally not a problem if there are joint debts.
However where there are no debts in both names, the creditors of the party who is earning the majority of the income might object to having some of the payments being used to pay for a third party’s debts.
What happens if one party’s Trust Deed is rejected?
If for any reason one party’s Trust Deed is rejected, normally the best way forward is for them to resolve their debts in a different way while allowing the other party to continue to use the Trust Deed solution on their own.
In this scenario, at least one member of the couple will gain the benefit of the Trust Deed. However the other party will need to consider using a Debt Management Plan (DMP) or Debt Arrangement Scheme (DAS) to resolve their own debts.
BMD Tip: This would mean that an allowance has to be made in the expenditure budget of the Trust Deed which has been accepted to pay for the other party’s DAS.
Is it ever best to avoid a joint Trust Deed?
Having pointed out the potential difficulties with implementing interlocking Trust Deeds, the fact remains that they are quite common.
However, sometimes it is not beneficial for both members of a couple to carry out a Trust Deed. This can often be the case if you both own a joint property.
If you are property owner and want to start a Trust Deed, you will have to agree to releasing the full amount of equity in your property and paying it into the arrangement.
If you do two interlocking Trust Deeds, all your property equity will have to be released. However if only one of you does a Trust Deed, then only half the property equity has to be released.
Of course this may make no difference if your property is in negative equity. But if there is considerable equity in the property it may not make sense for both of you to try to carry out an Trust Deed. This is especially the case if one person’s debts are small relative to their half of the equity in the property.
In this scenario it might be better for them to carry out a Debt Arrangement Scheme (DAS) to resolve their debts so their half of the equity in the property remains untouched.
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