A Protected Trust Deed is a legally binding debt relief solution available to people living in Scotland with £5,000 or more of unsecured debt.
What is a Trust Deed?
Do I qualify for a Trust Deed?
The criteria for being able to enter into a Trust Deed is fairly strict as it is a formal and legal debt solution.
To qualify for a Trust Deed, you must:
- Live in Scotland or have lived in Scotland in the last 12 months. You may also qualify if you have a place of business in Scotland.
- Have more than £5,000 of unsecured debts in total – if you are in a couple you will need to have a minimum of £5,000 of debt individually in order to qualify.
- Be able to pay a monthly contribution based on having enough expendable income – usually calculated by subtracting your expenditure from your total income.
- Be insolvent. This means you are unable to pay back your debts as your debts are greater than your assets. You must not be able to pay your debts in full in under 48 months.
- Have an income that doesn’t solely rely on benefits. Because any contribution to a Trust Deed can’t derive from benefits, your non-benefit income must equal or exceed the payment amount.
- Not have been bankrupt in the last 5 years.
Is a Trust Deed a good idea?
Whether a Trust Deed is a good idea for you depends entirely on your situation – there is no one-size-fits-all solution to debt problems. The good news is there are many options for dealing with debt in Scotland, but if you meet the criteria for a Trust Deed, there’s a strong chance it could be the best option for you.
How long does a Trust Deed last?
Your Trust Deed will typically last four years, consisting of 48 monthly payments, which will count as “full and final settlement” of the debts included in your Trust Deed. Any debts not repaid during the four years will be written off, and any creditors included in your Trust Deed will be unable to ask you for payments upon its completion.
What debts can be included?
All unsecured debts can be included in a Trust Deed, such as:
- Personal loans
- Credit cards
- Catalogues/Store cards
- Pay day loans
- Council tax arrears
- Over paid tax credits due to HMRC
- HMRC debts (PAYE, NIC & VAT)
- Over payment of DWP benefits
- Rent arrears (although may be a problem if still living in the property)
- CSA arrears (you must pay ongoing maintenance)
- Outstanding car parking charges
- Shortfall on mortgage or car HP, following repossession
- Personal guarantees, if crystallised
What debts cannot be included?
The following debts can’t be included in a Trust Deed:
- Secured loans, mortgages, hire purchase and any other loan secured on a property, motor vehicle or home furnishings
- Fines issued by the Court
- Student loans
- Debts obtained fraudulently
- Crisis loans from the DWP’s Social Fund
Trust Deeds and your assets
You can keep your home if you enter a Trust Deed, however, you should be aware that you may need to release some of the equity for your creditors.
If you are a home owner, the level of equity (difference between the value of the house and any loans secured on it) is calculated and fixed at the start of the Trust Deed.
The equity, if applicable, must be realised for the benefit of the creditors but this is normally done without having to sell the home – it is extremely unusual to sell the home in a Trust Deed, unless you wish to do so.
Equity, if applicable, can be realised by the following methods:
- Third party payments e.g. family, friend, business associate etc.
- Extending the payment period of the Trust Deed, normally by one or two years, depending on the level of equity
- Re-mortgage or secured loan
- Mortgage to Rent scheme
- Sale by private bargain or open market
In almost all cases you’ll be able to keep your car, especially if it’s required for work purposes. If it’s valued at less than £3,000 it won’t be considered as a realisable asset. However, if the vehicle is new/or worth a significant amount then you might be asked to trade it in for a less expensive car, releasing either income or lump sum to the Trust Deed.
If your car is subject to a hire purchase or any other type of secured finance agreement, you’ll be able allowed the contractual repayment within the monthly expenditure (providing it isn’t excessive) and in most cases you’ll be able to keep the car.
It’s important to confirm the type of car finance you are involved with before proceeding – original agreements must be provided.
It is likely that any savings you have prior to starting your Trust Deed will be paid into the agreement. However, when calculating your affordable monthly payment a ‘contingency’ allowance of up to £30 a month is taken into account while there could also be an allowance for irregular expenses such as household repairs and MOTs.
If you find you can manage to save a significant sum during the plan, your Trustee will increase the amount of your Trust Deed payments to ensure a higher return to creditors.
Pension funds will not be counted as an asset when the terms of your Trust Deed are being decided.
However, if you are currently drawing from a pension, this will be counted as part of your monthly income. If you are currently employed, and paying into an employer pension scheme, you may have to reduce these payments to free up more income for Trust Deed payments.
With a private pension, you might be asked to suspend payments altogether for the duration of your Trust Deed. Before a Trust Deed and during a Trust Deed you should not release a ‘tax free lump sum’ from your pension without discussing this with your advisor and/or IP.
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Advantages & Disadvantages of a Protected Trust Deed
- No upfront fees involved in setting up a Trust Deed
- A Trust Deed forces your creditors to stop contacting you
- Creditors won’t be able to pursue legal action against you
- Unsecured debts are turned into one monthly payment
- When the arrangement ends, all remaining debts are written off
- It may still be possible for you to access new credit
- A Trust Deed shouldn’t have an impact on your employment
- Assets like your home and car will be protected
- It’s possible your creditors will reject your proposed Trust Deed
- Trust Deeds don’t cover secured debts or student loans
- You will be under financial restrictions for four years
- Trust Deeds often have a negative impact on credit
- While it’s possible, accessing new credit will be a challenge
- You can’t be a Company Director during a Trust Deed
- Equity in your home may need to go towards your debts
- Trust Deeds can fail, which usually results in sequestration
How much does a Protected Trust Deed cost?
- Fees and costs to cover the work of the Trustee is paid using funds received into the Trust Deed, meaning you won’t be expected to pay more than the agreed contribution from the income and/or assets.
- We do not charge set up fees and we would advise against using any company who does. Creditors agree the level of the Trustee’s fee at the beginning of the arrangement and monitor that level throughout.
- There is no cost to you if you decide against signing a Trust Deed after taking advice.
Joint Debt & Trust Deeds
Joint debts can be included in your Trust Deed
The other person is still responsible for repaying the full amount – not half of the debt
If the other person would struggle to repay debt, they may need to seek debt advice, or enter into a Trust Deed themselves
‘Joint’ Trust Deeds do not exist, but two individuals can each enter into separate Trust Deeds which include their joint debt(s)
Cancelling a Trust Deed
- A Trust Deed is a legally binding agreement, so cannot be cancelled at will.
- If you are unable to make payments which your creditors find acceptable, your Trust Deed may fail.
- The failure of a Trust Deed is likely to end in your sequestration.
Can you pay off a Trust Deed early?
If, during the process of paying towards your Trust Deed, you find yourself with an unexpected source of income – such as an inheritance or a redundancy settlement – it’s possible to offer it towards your Trust Deed. However, you will be asked to verify the source of the money first.
If you have the money to pay off your Trust Deed early, you should speak to your insolvency practitioner and let them know.
It may be possible to settle your arrangement early if you can afford all the payments due, as well as any fees associated with setting up your Trust Deed.
Does a Trust Deed affect your credit rating?
It’s important to know that if you decide to go ahead with a protected Trust Deed, it will be reflected in your credit file for six years.
This can be a barrier for many people who are weighing up a Trust Deed as an option for dealing with their debt, but it’s worth remembering that your credit rating may already be in poor shape because of your debts.
A Trust Deed is a way of dealing with those debts so you can recover financially.
You’ll also be added to the insolvency register when your Trust Deed is set up. Once you have completed your payment term, however, you will be free from debt and able to begin the process of rebuilding your credit rating.
Will a Trust Deed impact your employment?
It is very unlikely a Trust Deed will impact your current employment as you won’t typically have to inform your employer of the arrangement.
So long as entering into a Trust Deed doesn’t impact your ability to do your job, you should be able to get on with your working life as normal.
There are some exceptions to this. If, for example, your employer is one of your creditors, or you are in a profession where it is stated in your terms and conditions that you are not allowed to enter any form of insolvency arrangement, you should consider your options carefully before entering into a Trust Deed.
Entering into a Trust Deed may also affect your ability to apply for certain jobs, like the police, prison and financial services.
If you are already in a profession which you think might preclude you from entering into a Trust Deed, you should check your employment contract or contact a financial advisor before taking any action.
What happens when a Trust Deed finishes?
When all your payments have been made, and there is nothing left outstanding, you will be discharged from your Trust Deed.
Your lenders will be sent paperwork to confirm this and it is then their responsibility to update their records and close your accounts. You will receive a copy of this paperwork along with a discharge certificate.
Your arrangement will then be noted as being complete on the Accountancy in Bankruptcy (AiB) register and will be removed shortly after.
As far as your credit file goes, your lenders will have to report the changes to the credit reference agencies so that this can be updated, and all your debts changed to satisfied.
Once this has been done, you will be free to start again and begin to rebuild your credit score. This will take time so it’s important to be patient – don’t worry if it doesn’t go up as quickly as you’d like.
Where can I get more advice on Trust Deed – Scotland and other debt solutions?
Frequently asked questions.
Need more info? Here are a few of our most frequently asked questions on this topic. If you don’t see the answer you’re looking for here, give us a ring – we’d love to help.
Being in debt alone will already have affected your credit score, and, like most debt solutions, being in a Trust Deed will have a negative impact on your credit. It will remain on your report for six years, making it very difficult to get credit whilst in your arrangement.
Once the six years have passed, you will be able to begin rebuilding your score again.
If you stop making your payments into your arrangement, it can lead to its failure. Falling into arrears will lead to your Trustee losing faith in your ability to pay and your Trust Deed will be terminated.
If you are struggling to pay, it’s important to contact us as soon as possible. We have options to help you through your situation and avoid your arrangement failing.
No. Assets such as your house and car are not included in your Trust Deed.
However, if you are a homeowner and have equity in the property, we may ask you to attempt to release this towards the end of your arrangement. If you are unable to do so, your trust deed may be extended by 12 months.
Once you have made all your payments and your arrangement has been completed, you will be discharged from the trust deed. At this stage, the debts included will be written off and the companies are no longer able to chase you for payments.
You will be sent a letter to confirm this and it’s important that you send this to the credit reference agencies to update your credit report.
Trust Deeds will generally not affect a person’s job. You aren’t required to tell your employer if you are in an arrangement unless you are in debt to them or your contract states that you must declare this.
Some professions also may dictate within their contracts that you cannot be insolvent. It’s important to check this before entering into an arrangement to avoid any trouble.