Using A Trust Deed To Prevent Bankruptcy
Preventing bankruptcy with a trust deed is a good option in managing your debts without legal issues. A trust deed is an alternative to bankruptcy and it is a legal arrangement to pay off your creditors through a trustee hence, if you arrange a trust deed and adhere to the repayments, creditors cannot take any other legal action against you.
There are however a number of benefits to using a trust deed as opposed to filing for bankruptcy. This article aims to analyze the trust deed option available to you.
Trust Deed Process
If you are in debt, a trust deed will enable you pay off your creditors at the end of a three year period from monthly payments you have made to the trustee. There is also less expense and time spent arranging a trust deed than a bankruptcy court procedure.
Your creditors will normally be willing to accept a trust deed if the alternative is filing for bankruptcy because a trust deed will usually allow your creditor to see more of a return of their money than a bankruptcy would.
Trust Deed Set-Up Procedure
You can only arrange a trust deed through a Licensed Insolvency Practitioner who will act as a trustee. As a debtor, you must provide the trustee with all of your financial details including all information on creditors, the trustee will then draw up a proposal to all your creditors including how much you are willing or able to pay which will then be sent to your creditors for approval.
If your 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. You can access a protected trust deed which means that your creditors cannot take action to recover money from you while the trust deed is in place and repayments are made.
However, in some cases lenders may have the right to any equity that is available on a home though there are methods that can be used to avoid this procedure such as paying extra contributions or a buy back process.
You should bear in mind that secured lenders are not bound by the rules of a trust deed and may not be included in the trust deed arrangement.
Fees For Setting Up A Trust Deed
Usually there are no set-up fees involved in the trust deed process. The fees for your trustee will be agreed with the creditors and then dispensed from the trust deed account during the length of the arrangement. You 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 To Debtors
1. Correspondence from creditor will go through the trustee taking off some pressure from you.
2. Length of repayment time would be set by the arrangement giving you more room to organize your finances.
3. You will be relieved of any court appearances when a trust deed is in place.
4. You can retain directorships of your companies or businesses even while the trust deed arrangement is in place.
5. Your creditors cannot take any further action during the trust deed period giving you peace of mind.
6. Your debts will usually be paid at a reduced rate with interest and charges frozen.
7. All your debt balances at the end of the three year period are normally written off if the trust fund amount does not clear the debts.
Consequences Of Defaulting On A Trust Deed
Missing one or two payments will lead to extension of the trust deed but if you are having trouble adhering to payments then the trust deed may be re-evaluated and payments may be lowered.
However, if you continually indulge in non-payment of the trust fund then the deed may be terminated and legal action by lenders may be sought to recover their money. Note that a trust deed is an excellent option if creditors and lenders are applying pressure for repayments of debts.
You should always take professional financial advice if considering the deed process or alternative repayment options.