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If you have debt problems and are thinking about entering in to a protected trust deed, then there are some important points you need to know before signing up.
Trust deeds come in two types that offer borrowers and lenders different levels of protection.
You can’t just decide you want a protected trust deed, you have to take the right steps and your lenders have to agree.
The law that covers the agreements is published in the Protected Trust Deeds (Scotland) Regulations 2008.
Ordinary trust deeds
An ordinary trust deed is a formal agreement between someone that owes money and their creditors - the people who are owed the money - to repay as much of the debt as they can within a set period.
Typically, a borrower works out their disposable income and agrees a regular monthly payment.
Disposable income is the money someone has left after paying their priority bills like a mortgage or rent, food and other day to day living costs.
An ordinary trust deed is not binding on creditors, which means they can take further action to recover their money regardless of the agreement.
A protected trust deed in Scotland offers all the benefits of an ordinary deed, but with the added safeguard for the borrower that the lenders cannot make them bankrupt or take further legal action as long as they keep to the repayment terms of the agreement.
A trust deed becomes ‘protected’ if enough creditors agree to the terms.
Protected trust deeds
At the start of the deed, the insolvency practitioner running the deed will write to each lender asking them to confirm they agree to the terms.
Providing half the lenders holding two-thirds of your debt agree within five weeks, then the deed has protected status.
A lender can also object to the deed, and if they want, can start bankruptcy proceedings in those first five weeks. You can also declare yourself bankrupt.
If a lender does not reply to the letter, they are considered to agree with the terms of the deed.
Few lenders object because the trust deed is based on the same repayment rules as bankruptcy, so there is little financial advantage for a lender to turn down the arrangement.
Credit rating
The details of a protected trust deed are entered on the Register of Insolvencies, which means the deed is available for credit reference agencies to include on your credit rating.
Before signing a deed, check out your employment contract to see if you have to notify your employer - if you work in finance, accountancy or a banking, entering in to the arrangement might affect your professional standing.
A trust deed, whether protected or not, does not stop lenders outside the agreement taking action to recover their money, including making a borrower bankrupt.
Similarly, if you take on any new finance during the trust deed term, these accounts are outside the agreement and the lender can take action to recover their money.
Strict rules
Because the workings of a protected trust deed are set out in law, insolvency practitioners must apply the rules strictly to make sure any agreement is fair to borrowers and their lenders.
HJS Recovery helped me sort out my crippling debt problems with both professionalism and kindness. Never judgemental, they agreed a repayment with my creditors that I could afford and now I am completely debt free.
Mr B from Bournemouth
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