What is a Scottish Trust Deed?
A Protected Trust Deed is a debt solution available in Scotland which allows you to make affordable payments over a period of 4 years, after which the remaining debt is written off. If you are based in England or Wales an equivalent solution which may be used as an alternative there is an Individual Voluntary Arrangement – or IVA. If this affects you then one of our advisers will be able to provide you with more information.
The process in Scotland, however, is a useful method of tackling debts and in many cases is an appropriate scheme which has a high chance of succeeding, It is used to tackle debts in excess of £8000, and while it usually takes place over 48 months in certain circumstances longer periods may be considered. At the end of the agreed period of repayments any outstanding amount of debt is usually written off.
With the help of a licensed Insolvency Practitioner acting as your Trustee a PTD will protect the individual from threats of legal action by creditors and provides security for their home and car, and other assets which may be at risk from those seeking to recover the debt. They will co-ordinate the repayments you are making on your debts, meaning that instead of paying several – often variable – amounts to a variety of creditors each month you will now make a single, regular payment to the Trustee, who then distributes the funds to your creditors as agreed. The amount of this repayment varies on a case-by-case basis, and depends on the total amount of your debt, your personal circumstances and the negotiations with your creditors.
Although this process is voluntary, it is important to note than once you enter the agreement it is legally binding and you must agree to its terms.
How does an individual enter a Protected Trust Deed?
There are restrictions on who can enter a PTD. As it is a scheme designed for Scotland, you must be resident in Scotland and have been living there for at least six months in order to be accepted into a PTD. Also, it is not open to individuals seeking a debt solution on their own. In order to gain a PTD you will need to engage an Insolvency Practitioner to act on your behalf. They will usually also act as the Trustee during the repayment process.
The Insolvency Practitioner will be crucial to the successful use of a PTD to tackle your debt problems. They will firstly interview you to establish a clear picture of your personal finances. This will include an assessment of how much you earn, the level of your debt, how much you are currently repaying and what your personal circumstances are. After this evaluation they will be able to calculate an amount which is available for repayments each month – after looking at your existing financial commitments, like mortgage payments, utility bills and council tax.
Once you have established what this budget is you will be in a better position to negotiate the terms of your PTD with your creditors. In order to be accepted then the Trust Deed must be reasonable in the eyes of the creditors, and to be successfully concluded it must be sustainable and affordable, because once commenced it is a legally binding process.
After you have worked with your Insolvency Practitioner to agree on this amount it will then be offered to your creditors. Provided they accept this submission you can then start working towards becoming debt free. If, however, you are not financially able to meet the minimum terms of the PTD, or if the creditors reject your agreement, you will not be able to proceed. In this case it is likely that another solution will be necessary, and our team will assist you in examining your options.
Once your Trust Deed is published in the Register of Insolvencies your creditors will have a period of five weeks in which they can move to reject the offer. While you might worry that it this stage the plan may be rejected it is important to note that once this period of time has passed all creditors are deemed to have accepted the proposal, and it is possible for objections to be received and the PTD still to be accepted. In order for a proposal to be rejected the rejections must represent more than one third of the value of the debt, or form a majority of the responses received.
If rejections are not received – or are insufficient to prevent the PTD – you will now be able to begin the process.
Once you begin your Trust Deed you will then be protected from any legal action by creditors to recover the debt – such as repossession or arrestments. However, any legal steps taken before you entered the PTD will remain in place.
Frequently Asked Questions about Trust Deeds in Scotland
What happens once the PTD has been agreed?
Once the PTD is established you are well on your way to becoming debt free. At this stage the schedule of repayments will begin, and you are fully protected for any efforts to pursue you for repayments beyond the terms of the PTD.
If I own my home will it be at risk if I enter Protected Trust Deed?
If you own your own home, however, there are some considerations which must be made. At the outset the level of equity on your home will be established in the Trust Deed. ‘Equity’ refers to the difference between the present value of your home and the amount of money you owe to the secured lender. If this represents a significant amount it may be used by your Trustee to raise funds with which to pay any creditors. We will always do this with the security of your home in mind, and it is unlikely that your Trustee will start a process that requires you to sell your home. We will make sure you have been fully advised of the other ways in which equity can be released on your home before the PTD begins.
How long will it be until I am debt free?
While each individual PTD varies, the normal period for which a Trust Deed lasts is four years. You are legally required to adhere to the terms of the PTD through this period, but once the monthly repayments have been made you will receive a letter of discharge – which notes that you have completed the process. It is not necessary for your debts to have been repaid in full by this point, provided you have fulfilled the initial agreement. Any difference between the initial total amount owed and the final total amount repaid is written off, clearing the debts you had at the outset of the Trust Deed. At this stage creditors are no longer allowed to pursue you for the settlement of any outstanding debt.
What the advantages and disadvantages associated with using a Protected Trust Deed?
While this debt solution provides a clear method of tackling your debts, it is important to be aware of any disadvantages in the process or long-term consequences which may affect you in the future.
The first potential downside to using this solution is that creditors have the ability to vote against it. In order for a Protected Trust Deed to be successful you will need to satisfy these creditors. There are also personal considerations to be made since your credit rating will be affected
Although the aim of a Trust Deed is to ensure you become debt free as simply and affordably as possible, the 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 vote to stop a Trust Deed becoming protected, and there are even certain professions which prevent members from signing Trust Deeds. 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 DebtAdvisoryScotland 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.