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Protected Trust Deed

A Protected Trust Deed can be used by Scottish residents as a voluntary but formal arrangement to pay an affordable amount of disposable income to repay an element of unsecured debts. In a Protected Trust Deed, the debts that cannot be repaid are written off.
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Personal debt and Protected Trust Deed

A Protected Trust Deed (“PTD”) allows an individual to take control of their debts and negotiate an agreement with their creditors, leading to a future free of debt.

A PTD is a legally binding agreement, which freezes interest and charges on unsecured debts and allows an individual to agree a sum towards their debt over a period of 4 years. The agreement will include a monthly agreed contribution from income at the time of signing the Trust Deed.

If breathing space is required to allow an individual to sign a Trust Deed or obtain further advice, a Moratorium can be applied for. The Moratorium is registered on a public register, being the Register of Insolvencies, and stops creditors taking any action during the period being 6 months.

What is the Protected Trust Deed process?

A PTD is a straightforward way to make an affordable arrangement with creditors which will provide debt relief for a period of normally 4 years.

An individual who qualifies for a PTD initially signs a Trust Deed with a Trustee (a qualified insolvency practitioner). The Trustee’s role is to administer the PTD and make payment to creditors from the monies ingathered.

Prior to signing the Trust Deed, the Trustee will assess the level of monthly contribution to be paid during the 4 year term. If the individual has any assets, an agreement will be made as to how the assets will be dealt with by the Trustee. This will form the basis of the Trust Deed proposal issued to creditors.

The Trustee will contact all known creditors to advise of the signing of the Trust Deed and advertise the Trust Deed in a public register, being the Register of Insolvencies. Creditors have 5 weeks to agree or reject the Trust Deed proposal. If the majority number of creditors, or creditors amounting to at least two thirds of the total debt, are in agreement with the Trust Deed proposal, the Trust Deed gains Protected status. This means that creditors are legally bound by the terms of the agreement and are prohibited from raising action against the individual.

Once the agreement has been paid, the individual will receive their discharge from the PTD and, in turn, from the debts included in the agreement. Creditors included in the PTD are unable to pursue the individual for any shortfall on their debt.

If the agreement is not adhered to for any reason, the Trustee can dissolve the PTD, meaning that the debts revert to the individual, or they can apply for the sequestration (bankruptcy) of the individual.

The pros and cons of a Protected Trust Deed (PTD)

The advantages

  • Potential to write-off some of your debts once your four-year repayment plan is complete.
  • Affordable monthly payments that fit your budget and allow you to stay ahead of your debts, but income above essential living expenses must be paid into the PTD.
  • Any legal actions taken against you regarding debt recovery will stop, including enforcement by bailiffs (Sheriff’s Officers).
  • Interest and charges on debts are frozen.
  • Assets, such as your home, will be protected.

The disadvantages

  • A legally binding contract.
  • Creditors can object to your PTD and if multiple creditors object, your PTD may fail to achieve its protected status. If the PTD fails, you may be sequestrated (made bankrupt).
  • There may be restrictions on your expenditure during the term of your PTD.
  • Your credit rating will be affected.
  • Your employment may be affected.
  • The PTD will be included in a public register.
  • You may have to release some of the equity in your property or sell your property for the benefit of your creditors. A re-mortgage to facilitate this may be at higher interest rates. If this is not possible you may have to sell your home or extend the term of the PTD by at least a further 12 months.
  • The terms of a PTD may lead to a period when repayments are not made against certain debts, such as loans. This could lead to the debtor falling into arrears or their arrears increasing. Where this possibility exists, the debtor will be told when payments will be made against these debts.
  • Only those unsecured debts included in the PTD will be written off at the end of it. Those excluded from it remain repayable in full. Certain debts cannot be included in a PTD:
    • Student loans
    • Debts obtained fraudulently
    • Fines
    • Any loans secured against your assets, such as a mortgage

Advice on personal debt and Protected Trust Deeds

For more information on personal debt and Protected Trust Deeds, we offer an initial free consultation to review the situation and make recommendations on the best way forward. If we think that a Protected Trust Deed is the best route forward, our specialists can support the individual at every step of the way through the process.

Contact our Glasgow or Edinburgh Office to arrange a no obligation and confidential call with one of our Partners.

For information on fees in relation to a Protected Trust Deed, click here.

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