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Protected Trust Deeds

Monday, 27th April 2009

2011-005-scottish-flagThe Scottish alternative to an IVA (Individual Voluntary Arrangement). It is a similar principle, but the procedures are totally different.

A Trust Deed is a document dealing with an individual’s financial affairs and is overseen by a Licensed Insolvency Practitioner - ‘the Trustee’.

The Trustee acts as an honest broker between the debtor and his/her creditors to ensure the proposal being drafted is both realistic and fair to all parties concerned.

Once completed, the debtor will receive a draft copy of the proposal for his/her approval. Any necessary alterations are then made before the Trustee sends a copy of the Trust Deed to each creditor.

What is a Protected Trust Deed?

When a Trust Deed is accepted by creditors it becomes 'protected'. This means creditors must stop further interest from accruing on the debts. At the end of the Trust Deed, as long as the debtor has adhered to all terms & payments, his/her debts are considered to be settled in full.

When would I consider proposing a Trust Deed?

  • When simply making reduced payments on the debt would result in an unreasonably long repayment period.
  • When Sequestration is considered too drastic a step and when a realistic proposal for payment can be made.

How long does a Trust Deed last?

Discharge is normally granted after all contributions have been made. Most contribution periods are 48 months (4 years).

Do I pay my creditors in full?

A Trust Deed is an agreement between you and your creditors for repayment of a specific amount of your debt. The Trustee will work out the value of your available assets or an agreed monthly contribution and make a proposal on your behalf to repay creditors. The return to creditors can vary from as little 10p in the pound to payment in full.

How do creditors accept or reject my Trust Deed?

The Trustee publishes a notice in the Register of Insolvencies and writes to all the creditors advising them that the Trust Deed is to become ‘protected’. From the date of notification, creditors have a period of 5 weeks to accept or reject your proposal. If the Trustee receives more than 50% of creditors objecting in writing or one third in monetary value objecting, then the proposal will fail; but this is uncommon.

Once approved, all creditors included in the proposal are bound by the Trust Deed and any creditors (including any that did not vote) cannot carry out any action against you for recovery of any debts.

What if I have joint debts with a partner?

As with an IVA, Trust Deed deals only with one individual’s liabilities. If there are joint liabilities with another person, then your creditors have the option of pursuing the other party for the remaining balance or full amount. This will not happen if the other person also successfully proposes a Trust Deed.

What happens to the interest on the liabilities?

Once a Trust Deed is accepted by creditors it becomes 'protected'. This means creditors have no alternative but to stop any further interest from accruing on their outstanding debts. Providing the debtor keeps to the terms of their Trust Deed then their debts will be considered settled in full when it has finished.

Is there a certain amount I have to owe before I can propose a Trust Deed?

The minimum amount of debt is £5,000. There is no maximum.

What happens to my assets?

If it is a protected Trust Deed, then property which is conveyed to the Trustee may be sold for the benefit of your creditors. However there are other options which will be discussed with you in full prior to signing.

What will happen to my house?

The Trustee can sell all property which has been conveyed to him by the Trust Deed, however this is quite rare. Also if your house is jointly owned or if it is a family home, the Trustee will need to communicate with the co-owner or anyone else that has occupancy rights in the house.

When the Protected Trust has ended do I get my property back?

Once you have conveyed assets to your Trustee, they become under his/her duty to realise them for the benefit of your creditors. The Trust Deed continues to operate after your own discharge as long as there are assets for the Trustee to manage or 'realise'. Properties do not however need to be sold, if a satisfactorily arrangement is made with your Trustee you will be able to keep your property.

What could happen if I do not co-operate with the Trustee?

The Trustee can petition for your sequestration (Scottish equivalent of bankruptcy). The Trustee can also petition for your sequestration if he considers that would be in the better interests of your creditors, for example, by obtaining the greater statutory powers available to a trustee in sequestration. This is rare.

What if I do not have any assets?

Providing you are prepared to pay a proportion of your earnings to the Trustee, you can still propose a Trust Deed but it must however be beneficial to your creditors.

What are the Advantages and Disadvantages of a Trust Deed?

Advantages:

  • Most people feel it carries less of a stigma than sequestration (bankruptcy).
  • Once ‘protected’, creditors will be bound by the arrangement even if they did not vote in favour.
  • It is a more flexible alternative to sequestration.
  • There is no publicity, e.g. no Court appearances or advertisements appearing in local papers - only the Registrar of Insolvencies
  • You can still have a bank account and can be self-employed.
  • It may be possible to make more favourable arrangements than under sequestration to retain assets such as the family home.
  • You retain household items and your car if reasonably required and subject to certain conditions.
  • You remain in control of the situation - rather than your creditors.
  • You will know from the start how many months you will be paying into the Trust Deed (usually 48 months if you are paying monthly).
  • There are fewer restrictions than apply in sequestrations, e.g. to carry on in business or holding certain public offices.
  • You can still act as a director of a limited company in most instances.

Disadvantages:

  • You may be barred from some public offices.
  • Will affect your credit rating as will be detailed on the Registrar of Insolvencies.
  • Any assets such as equity in a property will be taken into account as well as assets you own at the start of the Trust Deed. Anything you acquire during the course of the Trust Deed would also be conveyed to the Trustee, e.g. an inheritance or a lottery win.
  • The arrangement is binding on you as well as on your creditors. If you were to default on the arrangement then the Insolvency Practitioner may petition for your sequestration.

Trust Deed Fees

As part of the process of setting up a Protected Trust Deed your income and expenditure will be assessed. This will help establish what you can afford to pay your creditors each month into the arrangement, this is carried out to ensure that you can afford the contributions which will give your arrangement the best possible chance of success.

You should not pay up front fees to begin the PTD process. Fees vary and are built into the regular monthly payments i.e. you do not pay a separate fee, this is included in the amount you can reasonably afford. A schedule showing the level of fees to be charged in a PTD is included within the PTD proposal for you and your creditors to see.

Can DebtWizard help decide if a Trust Deed is right for me?

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