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 48 months.
The following criteria are generally applicable to start a Protected Trust Deed (PTD):
- You must be insolvent
- You must live in Scotland
- The technical minimum level of qualifying debt required to enter a trust deed is £5,000. If you’re a couple then each of you will need to have a minimum of £5,000 of debt individually in order to qualify. In practice, an individual should have unsecured debts of more than £8,000 to be considered for a PTD
- 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. If they do not object within 5 weeks then they are deemed to have agreed to the terms of the Trust Deed. A Trust Deed will not be protected if more than half in number or no less than third in value object.
- 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'. 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 S166 of BSA 2016 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 2 years after completing it your credit rating will be affected - a PTD may last 48 months 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.
- If your PTD fails, you may be sequestrated (sequestration is the Scottish equivalent of bankruptcy).
- 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.
Another impartial booklet from the AiB called “Debt and the Consequences” can give you more information about what can happen if you do not deal with your debts or your creditors. It also tells you more about the options that might be available to you.