Protected Trust Deeds

What is a Protected Trust Deed?

  • This is a legally binding agreement applicable only in Scotland between the debtor (the person that owes money to another party) and their creditors (the other party).
  • Through this agreement, the debtor agrees to make one monthly payment at a fixed amount, and ALSO surrender all of his/her key assets (e.g. share of the equity in the house, car, any investments/savings etc) with a Trustee (representative of the debtor) for a fixed period of time – usually 3 years. In effect you will be transferring all of your assets to your Trustee.
  • These monthly payments and the proceeds of the assets will go towards repaying the unsecured debts, and after the 3 year period, any remaining debt will be written off.
  • A Protected Trust Deed is an alternative to ‘Sequestration’ which is the Scottish equivalent to bankruptcy. As the alternative, creditors will expect that they will receive a greater debt repayment than they would through sequestration.
  • A Trustee is a licensed Insolvency Practitioner (IP), and this individual will be responsible for preparing a Trust Deed Proposal based upon the debtor’s assets and liabilities, income and expenditure.
  • Once this Proposal has been drawn up, the debtor needs to understand all the terms detailed, and sign the document to signify accuracy of the contents and acceptance of the terms set out.
  • Following the debtor’s signature, the Trust Deed Proposal is sent out to each of the creditors for consideration. The creditors will have 5 weeks to object to the terms proposed by the Trustee – a lack of response during this time will be taken as acceptance.
  • As well as circulating the Trust Deed Proposal to your creditors, the Trustee will place an advert in the Edinburgh Gazette, which is a publication read by solicitors, accountants, banks and other institutions.
  • Provided that no more than one third of the creditors, in terms of value of the overall debts, OR no more than 50% of the creditors by number, object to the terms set out in the Trust Deed Proposal, the Trust Deed will become ‘Protected’, binding ALL creditors to its terms.

What are the criteria for a Protected Trust Deed?

  • These are available only for residents of Scotland.
  • The debtor must be in paid employment.
  • Ideally, the minimum unsecured debts for consideration should be at least £10000.
  • There need to be at least 2 separate creditors.
  • You should be able to afford a minimum of £125 per month (Disposable Income) to pay to your Trust Deed each month, after covering essential living costs such as mortgage/rent, food, utilities etc. This may need to be higher depending upon the size of the unsecured debts under consideration.

What are the advantages of a Protected Trust Deed?

  • Only one monthly payment required into the Protected Trust Deed.
  • All interest and creditor charges are frozen.
  • No further pressure from creditors for payment, and all creditor correspondence and queries are handled by the Trustee.
  • Upon completion of the Protected Trust Deed, the debtor becomes completely debt free in respect of all the debts included in the Protected Trust Deed.

Are there any disadvantages of a Protected Trust Deed?

  • It is important to understand that you may be forced to sell your home if creditors cannot be paid in full from other sources.
  • Monthly administration fees are charged by the Trustee and these are deducted from the debtor’s monthly contributions into the Deed. Such fees are agreed with the creditors as part of their consideration of the returns they assess.

The experts at National Money can advise further in respect of specifics to see if this is the right route for your situation – call us on 08448 247 260