Protected Trust Deed

A protected trust deed, overseen by the Accountant in Bankruptcy, is a voluntary but formal arrangement that is used by Scottish residents where a debtor (who can be a natural person or partnership) grants a trust deed in favour of the trustee which transfers their estate to the trustee for the benefit of creditors. Any person wanting to make an application for a protected trust deed must have been a resident of Scotland for at least six months prior to making the application.

This can be a way for people to deal with debt problems by protecting the debtor from the legal enforcement of debts which are included in the trust deed, but only once it has become protected. It will not reverse any action that has been taken prior to the trust deed, such as earning or bank arrestments, although the trustee may negotiate the lifting of any arrestment. Many people who enter trust deeds are able to keep their homes, but where there is equity, that equity will normally have to be realised to swell the estate. This can be achieved by third-party buy-outs or remortgaging, but in extreme cases may be through the sale of the debtors home.

Provided certain trust deeds may be registered as “protected”, thereby preventing creditors from petitioning for the debtor’s sequestration. The main advantage of entering into a trust deed is that all correspondence is directed to the trustee, who handles all of the communication with the creditors. There is no court involvement, unless the debtor refuses to cooperate with the trustee.

The arrangement is likely to lessen issues from creditors while all the associated interest and charges from unsecured debts ( in the Trust Deed) are frozen (not if the debtor becomes able to pay interest prior to discharge). After 3 years your remainder of the debt can be written off (it's a minimum of 4 years now). Only disposable income is used to pay creditors. You can negotiate to save your home (not necessarily true - depends upon circumstances).

The main disadvantage of a trust deed is that existing enforcement action, such as earning and bank arrestments may continue to be effective and home owners will be required to deal with equity in their home, should they have any. This can normally be dealt with without selling, although where there is an excessive amount of equity the debtor may be required to sell the property. Normally, equity can be dealt with by remortgaging, or extra monthly payments.

The trust deed does not stop a person from being self-employed. While in the Protected Trust Deed, a person may not incur debt of more than £500. A common misconception is that credit can continue to be used while in a trust deed, however, this could result in criminal charges. When entering a trust deed a default will be placed on the debtor's credit file which will last for six years. Some people are unable to sign a trust deed because of their contract of employment states they cannot enter an insolvency solution. An individual's credit rating is negatively affected and trust deed is advertised in the AIB register - a public record. Heavy penalties can accrue for missing a payment (or, depending upon circumstances and the view of the trustee, no penalties at all). Taking out future debts becomes difficult.

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Wikipedia