What is a Protected Trust Deed?
A Protected Trust Deed is a formal and legally binding debt solution available to residents of Scotland. It is an agreement between an individual who is unable to pay his/her creditors in full and a licensed Insolvency Practitioner, who acts as the Trustee. A trust deed transfers your rights to the things that you own (i.e. your assets) to the Trustee who can sell them to pay your creditors. A Trust Deed will normally include a contribution from your income for a set period, which is usually 3 years but it is possible for the Trustee to extend or reduce the term in order to fit your circumstances vary.
The following criteria are generally applicable to start a Protected Trust Deed:
- You must be insolvent
- You must live in Scotland
- You have unsecured debts of more than £8,000
- You have regular income and disposable income of £200 or more per month
- Fees are applicable if you use a qualified Insolvency Practitioner as your Trustee and it is recommended by the Accountant in Bankruptcy (Scotland) that you seek professional debt advice taking consideration of all the debt solution alternatives before signing a Trust Deed.
MoneySave Solutions has specialist partners who can help any clients who would like to make use of this debt solution. It is important that you read the Debt Advice and Information Pack (PDF), produced by the Accountant in Bankruptcy (AIB), and there are several important points that need to be considered before signing a Trust Deed, which is a very serious matter:
- An ordinary Trust Deed is not binding on your creditors unless they agree to its terms and it becomes Protected. Your Trust Deed will become protected if a sufficient proportion of creditors agree to it. When you sign a Trust Deed, your Trustee will write to all your creditors asking them to agree to its terms. They must respond within 5 weeks. If more than half of your creditors in number or if creditors who, together, are owed more than 2 thirds of your total debt, write to your Trustee to say they do not agree to your trust deed being protected, your Trust Deed will NOT become protected.
- A Protected Trust Deed (PTD) will be recorded in the Register of Insolvencies, a public register administered by the Accountant in Bankruptcy, as a 'Protected Trust Deed' and will be published by the Trustee in the Edinburgh Gazette as part of the process of the trust deed becoming 'protected'. This binds your creditors and prevents them from making you bankrupt so long as you stick to the terms of the PTD.
- Recent changes implemented through Part 2 of the Home Owner and Debtor Protection (Scotland) Act in November 2010 affect how your home is treated in a PTD. If you own your home, you may have the option of asking your secured creditors (mortgage lender) for their permission to exclude your home from the trust deed. If your secured creditors agree, the rest of your creditors will be informed of this when they are asked to agree to the protection of your Trust Deed. If your creditors do not object to your trust deed becoming protected, you will keep control of the equity in your home. The rest of your assets pass to your Trustee as normal.
- Whilst on a PTD and for 3 years after completing it your credit rating will be affected - a PTD may last 3 years but the effect on your credit rating will last 6 years, though your record will show the debts as cleared from the point that you are discharged (typically 3 years). During the term of the Trust Deed, you will not be able to obtain credit over £250 without telling the creditor about the PTD.
- If your PTD fails, you may be sequestrated (sequestration is the Scottish equivalent of bankruptcy) and you remain liable for the balance of your debt and any Trustee fees and costs already incurred. This may also stop you from being able to deal with your debts through a debt payment programme (DPP) under the Debt Arrangement Scheme.
- Whilst your PTD Proposal is being prepared your unsecured credit accounts may go into further arrears until the Trustee starts disbursing payments to these creditors.
- Your trustee will be paid before any money is available to repay your creditors. The fees will normally range between £2,500 to £5,000 (plus VAT) and will be taken from the contributions you make during the time of the PTD.