Scottish Protected Trust Deeds

A protected trust deed is a means in Scotland whereby you can avoid bankruptcy by arranging to pay your debts over a specific time period. It is very similar to an IVA (Individual Voluntary Arrangement) under which you agree to make affordable monthly payments for a certain period of time, after which any further debt owed is written off by the creditor.

In an ordinary Trust Deed you legally agree to transfer all your assets to a trustee who then handles payments to your creditors. These payments can be made from money you agree to pay to the trust and also by selling your assets, though essential household items cannot be sold. Basically it is a means of avoiding bankruptcy (also known as sequestration). However, any creditors objecting to the trust deed can take their own steps to recover what you owe them. A Protected Trust Deed differs in that even creditors that object cannot undertake further legal steps to recover what they are owed. They must accept the terms of the trust deed.

In order for a trust deed to become 'protected' the following steps are necessary:

1. Your trustee must place a notice in the Edinburgh Gazette,
2. Inform each of your creditors in writing that you are petitioning for a Protected Trust Deed, and
3. Send each a creditor a copy of the Edinburgh Gazette notice.

Each creditor then has five weeks in which to object, commencing on the date of publication of your notice in the Edinburgh Gazette. The trust deed will then become protected if:

a) Fewer than one third of your creditors object, OR
b) Fewer than those representing a third of your total debts object.

If either of these groups do object, then you may be able to petition for sequestration yourself, but only if you owe more than £3,000 and you have not been declared bankrupt during the previous five years.

A protected trust deed should only be used where you have no other means of repaying your debts and do not wish to be declared bankrupt. Credit references agencies will be informed of your insolvency through your notice in the Edinburgh Gazette, and your trustee must be provided with all of your assets (everything you own). You may also offer the trustee that sum of your earnings that can afford to pay your debts.

Obviously, the greater that sum then the less likelihood of all your property being sold. You might also consider taking a loan secured on your property that may pay of your debts. The trustee can sell your property to raise the cash needed to meet the terms of the protected trust deed, and even if your house is co-owned a sale can be forced in court with the trust receiving your part of the proceeds.

It is therefore a serious step to take, and should only be used as a final step before bankruptcy. All of the creditors must correspond with the trustee, and not with you directly, even those that objected. The trust normally runs three years after which remaining debts are written off and any remaining funds and property still in the trust are returned to you.

There are benefits of a protected trust deed other than avoiding bankruptcy:

• You no longer have the pressure of continual telephone calls from
creditors
• All interest charges and costs are stopped when the protected trust
is set up
• It cost less to set up than bankruptcy
• You will normally be able to serve as a company director
• You will normally be able to remain self-employed
• You will normally still be able to hold public office
• All remaining debt after three years will be written off
• Information about the protected trust deed is not published in the
press like bankruptcy is

However, you must take no further credit during the period of the trust deed, pay the agreed monthly contribution and cooperate fully with the requirements of the trustee. You must also inform the trustee should your financial situation change (such a lottery win, bonus or any other windfall).

The Protected Trust Deed is available only in Scotland, and relatively easy to set up. You first have to complete a form that will determine whether or not you qualify for this method of arranging debt repayment, and if so you are put in touch with a company that specializes in trust deeds. They will then take over the process for you from the information with which you provide them.

More information on the Protected Trust Deed and how to find out if you qualify is available on our website Trust Deed.