Protected Trust Deed.
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Protected Trust Deed.
Solution for Scotland
May not be suitable for all. No loans provided. Fees and disadvantages may apply depending on the solution, Read here
Honesty and Integrity
We make a difference
How can a Trust Deed help me?
A trust deed can help you with debt problems by:
- Writing off debts: After a set period, the remaining debts are written off
- Lowering monthly payments: You pay a single monthly amount based on what you can afford.
- Avoiding legal restrictions: A Trust Deed is less formal than bankruptcy and avoids some of the restrictions that come with bankruptcy.
What is a Trust Deed?
A trust deed is a voluntary agreement between you and your creditors, in which you commit to regular payments toward your debts.
After a set period, any remaining debt may be written off.
Through this agreement, your assets and liabilities are transferred to a trustee, who manages your debt and works to repay your creditors as much as possible. Assets with any equity value (your home, car) may require to be sold or an extension of the 4 year term agreed with your creditors.
If most creditors agree, the trust deed can become “protected,” making it binding on all creditors, who are then unable to pursue further action to recover the debt. If it is not “protected,” creditors can still take action to recover their money.
A trust deed is just one option for managing debt, so it’s wise to speak with an advisor to find the best solution for your situation.
How does a Trust Deed work?
A trust deed works as a formal agreement where you commit to repaying part of your debt over a set period, typically with manageable monthly payments. Here’s a step-by-step breakdown:
- Assessment of Finances: A licensed trustee evaluates your financial situation, including income, expenses, assets, and total debts, to determine a realistic payment plan.
- Agreement with Creditors: The trustee proposes the plan to your creditors. If most creditors agree, the trust deed becomes “protected,” meaning creditors cannot take further legal action or add interest on the debt.
- Repayment Period: You make regular payments to the trustee over a period, usually around four years. The trustee distributes these payments to your creditors.
- Debt Write-Off: After successfully completing the agreed term, any remaining debt is written off, giving you a fresh financial start.
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Trust Deeds FAQS.
Here are four frequently asked questions about trust deeds:
What happens to my assets in a trust deed?
In a trust deed, certain assets may be sold by the trustee to help repay your debts. However, essential items (like basic household goods and tools needed for work) are typically excluded. If the trust deed becomes “protected,” creditors cannot demand additional assets beyond what’s agreed in the deed.
How long does a trust deed last?
Most trust deeds last for four years, during which you make agreed-upon monthly payments. After this period, any remaining debt may be written off, provided you have met all terms of the agreement.
What does it mean for a trust deed to be 'protected'?
A “protected” trust deed is binding on all creditors, meaning they cannot take separate legal action or add more interest to your debt. For protection, less than a third of creditors (by debt amount) or less than 50% (by number of debts) must object to the terms.
Will a trust deed affect my credit score?
Yes, entering a trust deed will affect your credit score and remain on your credit report for six years. This may impact your ability to get credit in the short term, but it can offer a path to become debt-free and rebuild your financial health.
Eligibility of a Trust Deed.
Location: Trust deeds are available only in Scotland.
Debt Amount: You must have unsecured debts of at least £5,000.
Ability to Make Payments: You must have a regular income and be able to make consistent monthly payments. The trustee will assess your income and expenses to ensure you can sustain the payments.
Types of Debt: Trust deeds cover unsecured debts, such as credit cards, loans, and overdrafts. They do not typically cover secured debts (like mortgages) or student loans.
Asset Review: If you have valuable assets (e.g., property, vehicles), you must be willing to let the trustee assess and potentially use some assets to repay creditors, although essential items are generally excluded.
Creditor Agreement: To become “protected” less than a third (in value) of your creditors – or less than half in number must object to the Trust Deed. If accepted it becomes binding on all creditors, preventing them from taking further action – such as earnings arrestments – against you.
Here are some typical examples.
Individual Voluntary Arrangement Example
Example case completed in 2024
Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.
IVA is typically for a period of 60 months, depending on your homeowner status
Nominees fees £1,900 & Supervisors fees £1,750 = total fees £3,650, this amount is deducted from the repayment amount over the 5 year period
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Trust Deeds Fees .
No upfront fees are required. Fees apply should you decide to enter an arrangement.
To set up a Trust Deed, you need to instruct the services of a Trustee so there are some costs involved. A Trustee is a licensed professional.
A Protected Trust Deed (PTD) can only be provided by an organisation with a licensed Insolvency Practitioner. The initial advice is free, and fees for a PTD are generally consistent across providers, as outlined below.
To set up a PTD, your Insolvency Practitioner (or trustee) will assess your income and expenses to determine an affordable monthly payment for your creditors, factoring in your essential bills and living costs. PTD fees and costs are deducted from these payments, and the remaining amount is distributed to creditors. This split and the trustee’s fees are reviewed and approved by your creditors as part of the process to achieve protected status.
The trustee’s fees generally include:
- A fixed fee, ranging from £1,000 to £3,000, depending on the complexity of the PTD.
- A realisation fee, usually 10-20% of the funds received.
During the 4-year PTD term (or longer if needed), the trustee and their qualified staff will:
- Prepare and present your PTD proposal to creditors.
- Obtain protected status for the PTD.
- Handle creditor and AiB communications.
- Monitor your payments and any changes in your financial situation.
- Annually review your finances and update creditors on PTD progress.
- Distribute dividends to creditors and finalize the PTD at completion.
Example of PTD costs and outcomes:
- Monthly Payment: £206
- Total Debt: £21,460
- Term: 48 months
- Total Payments: £9,888
- Total costs including fees and outlays: £5,8777
- Available to your creditors £4,010.40
- Dividend paid to your creditors: 18.68p/£
Advantages of a Trust Deed
Protection from Legal Action: While in a Trust Deed, you are safeguarded from any legal actions by creditors.
Single, Manageable Monthly Payment: You’ll make one affordable monthly payment that covers all essential living expenses and household bills, making it easier to manage.
Reduced Creditor Contact: Once your Trust Deed is protected, your trustee will handle all communications with creditors, relieving you of constant calls and letters.
Frozen Interest and Charges: From the date your Trust Deed is signed, all interest, fees, and charges on your debt are frozen.
Asset Protection: Your home and other assets can often be retained, depending on their value and your individual circumstances. Seek timely advice if you have assets you wish to protect.
Debt Discharge: After successfully completing your Trust Deed, you will be discharged from all remaining debts, with outstanding balances written off.
Disadvantages of a Trust Deed
Impact on Credit Rating: Your credit rating will likely be negatively affected by entering a Trust Deed.
Potential Objections from Creditors: If enough creditors object to the Trust Deed proposal, it may not achieve protected status.
Difficulty in Accessing Credit: You may find it challenging to obtain credit, both during and after your Trust Deed term, until your discharge is complete.
Restrictions on Directorships: You may be unable to serve as a director of a limited company unless permitted by the company's articles of association.
Student Loans Excluded: Student loans cannot be discharged through a Trust Deed or bankruptcy.
Possible Realisation of Assets: Equity in your property or other assets may need to be used to repay creditors, depending on value and circumstances. Seek timely advice if you have assets you want to protect.
Public Register: Your Protected Trust Deed will appear on the publicly accessible Register of Insolvencies in Scotland.
Employment Considerations: Some employers may view a Trust Deed unfavourably, potentially affecting current or future employment.
Trust Deed FAQ Continued.
An IVA usually lasts for five or six years. However, in some cases, it can be extended by another 12 months to give borrowers a chance to repay their debt according to the agreed terms.
You also have the option of repaying your IVA earlier if you have a lump sum that can fully or partially cover your IVA payments.
Your IVA will be registered on your credit record, and it will stay on the register for the period of your IVA and for up to 12 months after your IVA has concluded. The effect of your IVA on your credit rating will depend to some extent on what your credit rating was like before you commenced your IVA.
If you have successfully complied with the terms of your IVA, once it is completed, the remaining balance of the included debts is written off and these creditors cannot take further action against you.
If you have been subject to an IVA, getting a mortgage right away can be difficult. The best way to get a mortgage is to wait until your IVA is complete and no longer showing on your credit report.
Some specialist lenders may consider you until then, but you will not get better market rates until your credit score improves, and creditors consider you a reliable candidate.
When you enter an IVA, all household goods and domestic goods are excluded from your arrangement by law.
This means that while creditors can request you to sell certain possessions to repay them, your consent is a prerequisite, and they cannot force you to do so if you do not want to.
Some essential items you will never be asked to sell include:
- Electrical appliances like computers, televisions, and phones
- White goods like refrigerators and washing machines.
- Cooking items and kitchen equipment
- Clothing
- Books
- Children’s items
- Furniture, fixtures, and fittings
- Medical aids like mobility scooters and wheelchairs
It is vital to tell your IP about any valuable assets you own so they can come up with a realistic estimate of how much you can afford to pay into your IVA every month. Let them know if you have any:
- Shares
- Endowments
- Insurance policies
- Investments
- Windfalls
- ISAs
- Savings
Banks can exercise their ‘right to offset’ by automatically deducting payment towards debt from your bank account. This could lead to financial difficulty and leave you with insufficient funds to meet essential living expenses.
The only way to prevent this from happening is to change your bank accounts. You need to open a new bank account if:
- You have outstanding debts to your bank
- Your bank owns a company that is a creditor.
- Both your bank, as well as the company you owe money to, are owned by the same umbrella company.
Any savings you have will also be included in your IVA. Your savings can also help you decide what type of IVA is available to you.
Your IP will review records of any pension contributions or payments, including the state pension, before drafting your IVA offer. If you are making personal pension contributions, your lenders can ask you to stop making payments during the term of the arrangement and pay the amount to them instead.
If you are aged 55 or above and you have a ‘defined contribution’ pension that you have not started withdrawing, you will not be expected to include it in your IVA, though you can if you want to.
Both you and your IP have duties to fulfil during the term of the arrangement.
Your core responsibilities include:
- Paying your monthly contributions on time: failure to make payments could result in the IVA being terminated.
- Submitting your documents: You will be required to submit relevant documents for an annual review. This can affect your monthly contributions; payments may go up or down during the term of the arrangement based on your circumstances.
- Keep your IP updated: You must inform your IP if your financial situation changes. This includes but not limited to; income changes, employment status, change in address, forgotten debts, or windfalls like lottery wins or inheritance.
Can I keep my house during a trust deed?
It is possible to keep your home during a trust deed, but it depends on the amount of equity you have in the property. If there is significant equity, the trustee may require you to release some of it to help pay your creditors. However, if your home has little or no equity, it may be retained.
What happens if I miss a payment during my trust deed?
Missing a payment could result in the trust deed being revoked allowing creditors to take further action against you. It is also possible for the Trustee to secure payments direct from your employer in some circumstances. It’s important to communicate with your trustee if you are struggling to make payments, as they may be able to adjust the terms or offer support.
Can I apply for a trust deed if I am self-employed?
Yes, self-employed individuals can apply for a trust deed. The trustee will review your income and expenses, including any business-related costs, to determine what you can afford to pay toward your debts.
Can a trust deed be cancelled before the term ends?
No, a trust deed can not be canceled at your instruction. If the trust deed fails. you may have to repay the full amount of your debts, and creditors can take action to recover the remaining debt.
What happens after my trust deed is completed?
After completing the agreed period, if all terms have been met, you will be discharged from the remaining debts. This means the debts covered by the trust deed are written off.
Can I apply for a loan or credit while in a trust deed?
You may not take credit over £2,000 or any single line of unsecured credit over £500 while subject to a Trust Deed. However, after discharge, you may begin to rebuild your credit. It may be possible to refinance existing secured credit (such as vehicle finance at the end of your current agreement) with the consent of your Trustee.
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Industry Standards
As a proud member of DEMSA, we are deeply committed to maintaining the highest industry standards.
This commitment ensures that our debt management services are conducted with the utmost ethical integrity, transparency, and professionalism.
We strive to build trust with both our clients and creditors, providing solutions that not only meet regulatory requirements but also foster confidence in our approach.
Our adherence to DEMSA’s rigorous standards reinforces our dedication to delivering reliable, trustworthy advice and support throughout your financial journey.
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