Protected Trust Deed
What is a trust deed?
A trust deed is a voluntary agreement between you and the people you owe money to (also called your creditors). You agree to pay a regular amount of money towards your debts and at the end of a fixed time the rest of your debts will be written off.
All your belongings and property (your assets) are passed to someone who will look after your financial affairs. They are called your trustee. The trustee aims to pay your creditors as much as possible of the debt owed to them. This may involve some of your belongings or property being sold so that the money raised can be paid to your creditors.
A trust deed can become 'protected' if the majority of creditors are happy with the terms of the trust deed. This means that the trust deed is binding on all creditors and they cannot take any steps to recover the money owed to them.
If a trust deed is not 'protected' then it will not be binding on all of your creditors and they could still take action to recover the money you owe them.
A trust deed is only one of the options available to you if you have debt problems. You should get advice from a money adviser to help you decide what is the best option for you. You can find your nearest money adviser on the 'find an adviser' page on Money Advice Scotland's website
When a trust deed might be an option for you
A trust deed might be an option for you if you have:
Debts - you have debts of £5,000 or more
Enough money to make regular payments - you have enough money to make a regular contribution towards your debts. You can't set up a trust deed if your only income is from benefits
Belongings and property - you have belongings and property (assets) such as savings, investments, a car or a house. These can be sold so that the money raised can be paid to creditors.
Advantages of protected trust deeds
The advantages of protected trust deeds are:
No contact from people you owe money to - the people you owe money to (your creditors) can no longer contact you and instead have to deal with your trustee
No more enforcement action - if you are thinking of setting up a trust deed, you can apply to the Accountant in Bankruptcy to stop your creditors taking any steps to recover the money you owe them. This is called a 'moratorium' and it lasts for 6 weeks. This will mean that your creditors can no longer take steps such as arresting your bank account. You can also apply for a moratorium if you are thinking of applying for bankruptcy or a debt payment programme under the Debt Arrangement Scheme. You can only apply for one moratorium in any one 12 month period
Ability to pay bills - you don’t have to show that you are unable to pay your bills as they fall due. This is sometimes called 'apparent insolvency'. You have to be able to show this in order to apply for bankruptcy (called sequestration in Scotland)
Employment and public office - you are not barred from certain types of employment or public office as you would be under bankruptcy (called sequestration in Scotland)
Borrowing money – you are not legally stopped from borrowing money (obtaining credit) like a mortgage or a credit card, although this may be difficult to get in practice
Debts wiped out – your trust deed will usually come to an end after 4 years (called discharge). Most of your debts will be wiped out and you will not have to pay them back.
Disadvantages of protected trust deeds
The disadvantages of protected trust deeds are:
Paying regular contributions – you will have to pay contributions towards your debts for at least 4 years
credit rating – having a trust deed will affect your credit rating for 6 years from the date the trust deed begins. This can make it harder to get credit like a mortgage or a loan in the future
Selling your belongings and property – you may have to sell some of the things you own (your assets) such as your home
You can't be a company director – you can’t be the director of a limited company unless the terms of your trust deed allow it
Self-employment - you might not be able to carry on running your own business. The trustee might arrange for someone else to run the business or they might sell the business
New money or property - if you receive any new money or property within 4 years of the start of your trust deed, these can be claimed by your trustee. Examples include PPI compensation or an inheritance
Cooperation - if you don't cooperate with your trustee, they can apply to make you bankrupt.
Other things to consider about trust deeds
If you are considering setting up a trust deed, you will need to think about how much income you have to make contributions, what might happen to your home and the costs of a trust deed.
How much income do I need
You will usually need to have enough income left over after you have paid for essentials (called disposable income) to make a contribution towards your debts.
Disposable income is assessed by working out your usual income and expenditure over a month. Then you can see if you have any income left after you have paid for all your essentials.
If you don’t have any assets, such as savings, or property such as a car or a house, then you will need to have enough disposable income to pay towards your debts during the existence of your trust deed.
What will happen to my home
If you own your own home and you set up a trust deed, you may have to sell it in order to raise money to pay towards your debts.
In some cases, if you have little or no equity in your home, you may be able to set up a type of protected trust deed which does not include your home. (The equity in your home is the amount of money that you would have left after selling your home and paying off the mortgage.) You can only exclude one home from your protected trust deed and it must be the only or the main place that you live.
If your trust deed does include your home, you have family living with you and your trustee does want to sell the home, you can apply to the sheriff court to ask for the sale to be refused or delayed for up to 3 years.