Protected trust deed

A protected trust deed (PTD) is a voluntary but formal arrangement that is used in Scotland 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. It can be a way for people to deal with debt problems. It will protect the debtor from the legal enforcement of debts which are included in the the trust deed, but only once it has become protected (see below). It will not reverse any action that has been taken prior to the trust deed becoming protected, 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 for the debtors home.

Benefits of the protected trust deed (PTD)

Provided certain conditions are met, the Trust Deed 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. It does not appear in the local paper.

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. This can normally be dealt with without selling, although where there is excessive amounts 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 you being self employed and there is no credit restriction, unlike in bankruptcy. The debtor, however, remains liable for any debts accrued after the date of signing the trust deed. A Trust Deed can be registered on a debtor's credit reference file for six years.

Securing a protected trust deed (PTD)

Granting a trust deed is both less formal than the main alternative of sequestration (bankruptcy) and may also avoid some of the legal disabilities which follow from being made legally bankrupt.

Provided it meets certain conditions, a trust deed may be recorded in the Registrar of Insolvencies as a ‘protected trust deed’. This prevents a creditor from petitioning for the debtor’s sequestration (bankruptcy) so long as the person granting the trust deed abides by its terms.

Creditors have 5 weeks to object to a trust deed becoming protected. As long as fewer than the majority of creditors in number or creditors representing not more than a third of the value of all the debts do not object, the trust deed becomes protected.

Upon completion of the 36 month period and assuming all aspects of dealing with the debtor’s assets are complete, the Trustee appointed will adjudicate on creditor claims and then proportionally distribute the remainder of the ingathered funds to the creditors. The debtor will then receive a letter of discharge. Any balance of debt is written off and creditors cannot pursue you for interest or the balance.

The debt is frozen at the date the trust deed was granted provided it becomes protected.

Granting a trust deed is a voluntary act but once a person has signed a trust deed he and the trustee are legally bound by it.

In England, Northern Ireland and Wales there is a similar alternative to bankruptcy called an Individual Voluntary Arrangement (IVA).

Obligations of entering into a protected trust deed

When you agree to and entering into a protected trust deed (PTD), you take on the responsibilities and obligations of a regular legally binding contract to repay your debt. As such when you agree to the terms of the Trust Deed you commit to:

• Full cooperation with the trustee
• To pay the agreed monthly contribution on time
• To not enter into any additional credit agreements
• To advise the trustee of any unexpected windfalls or payments or that your financial circumstances change

Where, however, you experience a change in circumstances during your Trust Deed, such as unemployment, the Trustee should review you finances to assess what is an appropriate level of contribution. This may mean you will only have to pay a reduced contribution or no contribution. Likewise, if during a Trust Deed your circumstances improve, you may be required to pay an increased monthly contribution.

Where your circumstance change for the worse and you cannot maintain your level of contribution, although you may be allowed to pay a reduced contribution or no contribution, you will still need to make arrangements to realise any equity in your property.

Where a Trustee refuses to discharge the debtor at the end of the Trust Deed for failing to cooperate with the Trustee, it may still be possible for the debtor to appeal to the Sheriff for a discharge, especially where it can be shown they either didn't refuse to cooperate or couldn't reasonably be expected to.

External links

• Official website of Executive Agency of the Scottish Government.
• The Accountant in Bankruptcy, the Scottish Government Agency responsible for supervising Protected Trust Deeds in Scotland
• Obtain details of your local free advice agency