A Protected Trust Deed is a formal and legally binding agreement reached between an individual and their creditors. It is available only in Scotland and is designed to create an arrangement with creditors in which debts of over £5000 are repaid through a licensed Insolvency Practitioner acting as a Trustee.
The Protected Trust Deed lasts for a period of four years in most circumstances, although longer periods may be considered. At the end of those four years any remaining debt is written off, although there are some exceptions. A Trust Deed protects the individual from legal action by creditors, guarding your home and car and any other assets from being repossessed, and reduces repayments to a single monthly figure which is paid to the Trustee. This figure is an affordable amount negotiated with your creditors. The process is voluntary, but once entered into is legally binding.
For those based in England and Wales a Trust Deed is not available, but an IVA – or Individual Voluntary Arrangement – may be a suitable alternative.
How to qualify for a Trust Deed
In order to gain a Trust Deed you must firstly have been resident in Scotland for at least six months, and secondly, you must engage a Insolvency Practitioner to act on your behalf. The Trustee will first sit down with you to build a picture of your finances, establishing your income and how much money you are repaying each month. After evaluating your earnings and monthly outgoings such as your mortgage, utilities and council tax, the remaining portion of your income is set aside for repayment to creditors.
By doing so, the Trustee can protect you from further legal threats, arrestments or the repossession of your home, although any legal action taken before the establishment of a Trust Deed remains in place.
The Scottish Trust Deed Process
Advice – determining an affordable payment
To seek a Scottish Trust Deed you should first arrange a consultation with an money adviser, who will speak with you to arrange a realistic budget based on your personal finances and circumstances. Once a reasonable and affordable level of monthly repayment has been arrived at a Trust Deed can be formed and offered to existing creditors. Based on their approval of the submission you can then begin to move forward and replace your debts with one single monthly payment.
If a Trust Deed is not affordable
If the plan is rejected by creditors or you are unable to meet the minimum monthly payment you may not proceed with the Trust Deed. However, in such a situation other options remain. In this case, Sequestration (Bankruptcy) may be the best alternative, and our team will take you through the process should you wish to examine this and any other options.
If a Trust Deed is affordable
When a Trust Deed is signed the Trustee will share the proposal with any creditors, outlining in detail how much you are able to pay and how much they will each receive over the duration of the Trust Deed. The Trustee will also detail your assets and how they will be affected by the Trust Deed.
From the publication of a notice in the Register of Insolvencies your creditors have a period of five weeks in which to either reject or accepts the Trust Deed. If the proposal meets with no objections, or the number of objections are insufficient the Trustee will make an application for protection to the Accountant in Bankruptcy. In order for the objections to prevent the establishment of a Protected Trust Deed the objections must form the majority of responses, or represent over one third of the value of the total debt.
Creditors who fail to respond to the notice are considered to have accepted the proposal.
When Trust Deed is approved – a Protected Trust Deed
Once a Trust Deed is approved in this manner you are protected from creditors who would wish to take action against you to recover the debt. If you are a homeowner the Trust Deed will set the level of equity on your home at the beginning. The equity on your home is the difference between its value and the amount owed to the secured lender. If you have a large amount of equity in your home it will be released to the Trustee in order to pay your creditors. It is highly unlikely that you will be required by the Trustee to sell your home, and you will be advised of the different ways to release equity on your home before you sign the Trust Deed.
A Trust Deed normally lasts four years, and once the terms have been met over that period, and the final payment made, a letter of discharge will be issued to confirm the successful conclusion of your Trust Deed. At this point any balance between the amount paid to creditors through the Trust Deed and the total original debt is written off. Creditors will no longer be able to pursue you for any outstanding amount.
Advantages and Disadvantages
Although the aim of a Trust Deed is to ensure you become debt free as simply and affordably as possible, there are both advantages and disadvantages to the process.
- Payments are tailored to your personal circumstances and finances, and agreed based on what you can reasonably afford to pay.
- Throughout the process the Insolvency Practitioner will deal with all administration and correspondence, removing the stress and strain of dealing directly will several creditors.
- The process will also allow you to re-establish control over your personal finances, while you are guarded from legal action once the Trust Deed becomes protected.
- The costs incurred are met from your monthly payments over the lifetime of the Trust Deed, with the Trustee’s fees agreed with the creditors and deducted from the monthly payments and – if it occurs – the sale of any assets.
- When the process is concluded any debts included in the Trust Deed are written off.
However, there are also disadvantages to this process which must be taken into account if you are considering a Trust Deed.
- Creditors can object to a Trust Deed becoming protected, and signing a Trust Deed can affect your ability to continue in certain areas of employment or continue membership of certain organisations. We always recommend that you review your contract of employment prior to entering into any solution.
- A Trust Deed will also affect your ability to obtain credit in the future, being included in your financial history when potential future creditors assess the risk of extending you credit.
- Importantly, if you own your home you will also be required to release equity in order to pay creditors. However, at Scottish Debt Adviser we will ensure you are fully aware of such disadvantages and work with your to minimise them, such as helping you to avoid the sale of your home by re-mortgaging or having a third party make payments on your behalf. You may also be able to extend your monthly repayments beyond the conclusion of your Trust Deed.
Frequently Asked Questions
If a Trust Deed is an appropriate solution to your debt worries, you may wish to know more about the process. Below are some common questions about Protected Trust Deeds.
Who is eligible for Trust Deed?
Trust Deeds are only available in Scotland, to those who have been resident for at least six months.
Which types of debt can be met with a Trust Deed?
Trust Deeds are designed to deal with unsecured debts of more than £5000. Secured debts, such as mortgages and hire purchases cannot be included in Trust Deeds as they are already secured against assets.
Can I arrange a Trust Deed independently?
No. Individuals may not arrange their own Trust Deeds. They must be arranged by an Insolvency Practitioner, with a Trustee to act on your behalf.
What does a Trust Deed cost?
The Trustee’s fees are met through your monthly repayments. The balance from your regular contributions will then be paid to your creditors. At Scottish Debt Adviser, we do not charge for initial advice or for proposing a Trust Deed which is ultimately rejected by creditors.
Will it affect my job?
You do not have to declare a Trust Deed with any employer. Trust Deeds are totally confidential, and any arrangement between you, your creditors and your Trustee remains totally private. It is important to check your contract, however, as entering a Trust Deed can in some cases breach your conditions of employment.
Can I cancel my Trust Deed?
No. Trust Deeds are legally binding once Protected and cannot be cancelled. It is important you understand fully what you are agreeing to upon signing a Trust Deed, and at Scottish Debt Adviser we will work hard to provide you will all the information you require to make an informed decision.
What if my Trust Deed isn’t Protected?
If your Trust Deed does not become Protected we can offer a range of debt solutions. At Scottish Debt Adviser, our extensive experience and highly-trained team have a successful track record of successfully achieving protected status for Trust Deeds. If you would like to talk confidentially about Trust Deeds or seek impartial debt advice then please contact us.