Protected Trust Deed Scotland

What is a Trust Deed?

Trust deeds are an insolvency process that you can enter into voluntarily. They were created to help people who find themselves unable to pay back large amounts of unsecured debt.

If you are struggling with mounting debts or threats of legal action, you may be able to use a Trust Deed as a way to manage the situation and ultimately become debt free in 4 years.

How does a Protected Trust Deed work?

An agreement is made between you, the debtor (person owing money) and your creditors (people lending the money) to repay part or all of what is owed. The trust deed transfers control of all your assets to the trustee who will be a licenced Insolvency Practitioner (IP). The IP will use your assets to help pay off some of the debts and arrange your monthly payment plan which will normally run for 48 months.

At the end of the 4 year period any outstanding debt will be written off along with any charges, fines or penalties associated with those original loans.

The Trust Deed process is an alternative to the other personal insolvency options; Sequestration (bankruptcy) or a Debt Arrangement Scheme (DAS).

What is the difference between Voluntary and Protected Trust Deed?

It is important to understand the difference between a Trust Deed and a ‘Protected’ Trust Deed. You should only apply to use this type of insolvency process with the intention of securing the ‘Protected’ status.

Voluntary Trust Deed
A voluntary trust deed is not binding on creditors.
This means that even after you have entered into your payment plan these same creditors can change their mind and come looking for their money again or approach the courts to try and force you into bankruptcy.

Protected trust deed
A protected trust deed is binding on all creditors.
As long as you comply with the conditions of your Deed then your credits are legally bound by the agreement and cannot take any further recovery or legal action against you.

The ‘protected’ status also stops you (the debtor) from applying for bankruptcy (Sequestration) during the term of the Trust Deed.

If you obtain any other credit after signing the Deed then this will need to be dealt with separately and cannot be included in your original Deed.

A Trust Deed requires a Minimum debt level of £5,000 to become Protected.

Can I use a Protected Trust Deed?

• Your debts have to be £5,000 or more.
• You must have enough money left over each month to make reasonable payments
• If you have any property, assets, investments or savings then these can also be used to raise money to make payments.
• You cannot use a Trust Deed if your only income is from benefits.

What debts cannot be included in a Trust Deed?

• Secured debts – debts secured against the asset, such as a mortgage or hire purchase agreements.
• Child support arrears – You will need to arrange to pay child support arrears as part of your essential spending.
• Student loans – From the 27 June 2015 student loans cannot be included in a debt payment programme.

How long does it take to set up a Trust Deed?

Approx 5-8 weeks depending on the complexity of your situation & the number of creditors.

It takes approximately 4 weeks for a Trust Deed proposal to be drafted by the Insolvency Practitioner. The proposal is then sent to all the creditors who then have a further two weeks to approve it.

How long do I have to pay contributions?

Normally 48 months.

The only real exception to this would be if you have equity in your house and you do not wish to sell it. This may force a situation where you have to make payments for a longer period to cover the fact that you did not provide any money from your house.

What are the advantages of a Protected Trust Deed?

• Immediate protection – your creditors cannot contact you and can take no further legal actions against you, for example; try and arrest your wages or make you bankrupt.
• Trustee takes control – Your trustee who is a licenced Insolvency Practitioner will handle the entire process for you.
• Fees are frozen – your creditors cannot add any more interest, fees or penalties to your debt.
• You apply voluntarily – you do not have to appear in court or show evidence that you cannot pay your bills (apparent Insolvency).
• Keep your home – (see disadvantages also) It may be possible as long as some of the equity can be released from the property either by remortgaging or adding extra payments to the end of the Deed.
• Keep your job – unlike Sequestration, a Trust Deed should not bar you from certain types of employment, however you should still check with your HR department to confirm this.
• Borrowing money – you are not legally stopped from obtaining credit such as a credit card or mortgage but you will find it difficult since your credit rating will have been affected.
• Debt written off – Trust deeds typically run for 4 years and at the end of this term you are discharged. Any remaining debt that is unpaid is normally written off.

What are the disadvantages of a Protected Trust Deed?

• Secured creditors not included – Any secured loans such as hire-purchase or a mortgage cannot be included and these will still remain your responsibility. If you fail to keep up with payments on these loans then there is nothing stopping these creditors taking new legal action against you.
• Lose your home – If you have equity in your home and you are unable to remortgage the property or your creditors do not agree to extend the payment term the house may have to be sold.
• Bankruptcy risk – If a trust deed application is unsuccessful in becoming protected then creditors can sometimes pursue Sequestration.
• 4 year commitment – you are signing a legally binding agreement and will be required to make payments for 4 years. If you break the agreement your creditors could push for Bankruptcy (Sequestration).
• Sell your assets – some of your belongings may have to be sold to help pay towards your debt. Control of your estate is signed over to an Insolvency Practitioner who will look at what can be sold. For example, if your car is worth more than £3,000.
• Credit rating affected – your credit rating will be affected for 6 years from the date the agreement is signed. Obtaining credit is still legally possible but will be rather difficult.
• Public record – your information will be recorded in The Register of Insolvencies and will be open to public scrutiny.
• New money or property – if you receive any new money or property within the 4 year period of your trust deed, then these items can be claimed and used to pay towards your creditors.
• Can’t be a limited company director – unless both the terms of your trust deed and the articles of association of the company specifically permit this.
• Self-employment – If you are running your own business and the business has considerable assets then the Insolvency Practitioner may appoint someone to run the business or sell it to release the funds.

What happens if I fail to pay my monthly payments?

If you find that your circumstances have changed through some unforeseen situation, such as you lose your job or become ill, then it is possible for your Deed to be adjusted to accommodate this. The first thing to do is to contact your Insolvency Practitioner to make them aware of your new situation so they can advise you on the best course of action. Your IP will be the one to approach your creditors to negotiate any changes to the Deed.

A Trust Deed is a legally binding agreement and as such you are expected to honour your part. If you simply stop making payments without a good reason you will probably force your creditors to file for bankruptcy.

Can I get credit whilst the Trust Deed is running?

Yes, but your credit score will have been affected. You are not legally barred from obtaining credit but you will find it more difficult to obtain. You may have to pay higher interest rates and the total borrowing amount available to you will be lower than you would normally receive.