What is a Protected Trust Deed?

A Protected Trust Deed enables you to make a formal proposal for payment to your creditors through an Insolvency Practitioner. The proposed payments will be less than the full amount of the debt owed but your creditors would be accepting the offer in full and final settlement of their claim.

Your creditors have the right to vote whether to accept or reject your proposal but where they vote to accept it, a legal agreement is created which is binding on you and your creditors. The proposal will be tailored to meet your individual circumstances but typically would involve you paying a monthly payment, a lump sum or some combination of the two. When you sign a Trust Deed your assets are transferred to the nominated Insolvency Practitioner, who becomes your Trustee. Any valuable assets would be sold to help pay your creditors, but you are able to keep most of the things you need for day-to-day living. Proposals can also take account of erratic income such as overtime or bonuses.

You might consider a Trust Deed:

• To avoid Sequestration where that is considered too drastic a step and where a realistic proposal for payment can be made.

• Where the option to make reduced payments would result in an unreasonably long repayment period to clear the debts in full.

What are the advantages of a Trust Deed?

• Creditors will be bound by the arrangement even if they did not vote in favour. The Trust Deed will become Protected unless 1/3 in value or a majority in number of creditors, vote against it.

• You will know from the start how many months you will be paying for (usually 3 years if making monthly payments).

• It may be possible to make more favourable arrangements than under Sequestration to retain assets such as the family home.

• There are fewer restrictions than apply in Sequestration e.g. to carry on a business or hold certain public offices.

• Individuals may also feel it carries less of a stigma.

Are there any disadvantages to a Trust Deed?

• Any assets such as equity in a property will be taken into account and you would need to discuss with the Insolvency Practitioner how this might impact on your individual circumstances. In addition to assets you own at the start of the Trust Deed, anything you aquire during the course of the Trust Deed would also transfer to the Trustee, e.g. an inheritance or lottery win.

• The arrangement is binding on you as well as your creditors. If you were to default on the arrangement then the Insolvency Practitioner can petition for your Sequestration.

How do I get a Trust Deed?

You need to approach an insolvency practitioner who will act as your 'Trustee'. Scottish Debtline can suggest one for you or you can find one in your local Yellow Pages.