Solution - Scotland trust deed

What is a Scottish Trust Deed?

  • This solution is only available to people living in Scotland. If you live in England, Wales or Northern Ireland you may be able to apply for an IVA which is a similar solution, but it's important to note that it has different benefits, risks and fees associated with it. The Trust Deed is sometimes referred to as a PTD (Protected Trust Deed).
  • A Protected Trust Deed (Scotland) is a legally binding solution. A proposal is put to a debtor's creditors on their behalf by a licensed insolvency practitioner (IP). The proposal is an agreement by the debtor to make an affordable monthly payment towards their debt for typically 4 years. In return the debtor will only repay what they can afford. Any remaining debt will be cleared at the end of the solution, as long as the debtor complies with the terms and conditions of the debt solution.

Advantages of Trust Deed:

  • The debtor only makes one monthly payment to their debt
  • Interest and charges will be frozen. However if the Trust Deed fails at any stage, or the debtor receive a windfall, interest and charges will have to be repaid.
  • The debtor will not have to deal with their creditors, the IP will do this on their behalf
  • Once the solution is signed and protected both the debtor and their creditors are legally bound by the agreement, which means if the agreement is completed the debtor will be debt free having only repaid a proportion of the money borrowed
  • Homeowners may be able to retain their property, the IP will only be interested in any available equity.
  • In the future a debtor is likely to face fewer credit restrictions than if they had entered Sequestration.

Disadvantages of Trust Deed:

  • A Trust Deed will only deal with unsecured debts.
  • The debtor's credit rating will be adversely affected and it may take some time for their credit rating to repair. They will not be able to take further unsecured borrowing for the period of the Trust Deed.
  • Creditors do not have to accept a Trust Deed proposal.
  • Whilst in a Trust Deed there are restrictions on expenditure, and payments may go up as well as down.
  • Employment contracts may not allow the debtor to do a Trust Deed.
  • Homeowners may have to release available equity from their property through a remortgage, which may be on less favourable terms. If they are unable to gain a remortgage, the debt solution may be extended for up to 12 months.
  • Whilst the debtor's name is not published in the newspaper, their Trust Deed will be entered onto the government insolvency register, which is a searchable public database.
  • If Trust Deed contributions are not paid or terms are not met as agreed, the Trust Deed could fail which may lead to Sequestration / Bankruptcy.

There are fees involved in an PTD, but these are taken from the normal monthly payments into the PTD. The supervisor of the PTD will be a licenced insolvency practitioner who will negotiate this with the creditors involved before the PTD is agreed.

There are 2 types of fees charged by the insolvency practitioner during a Trust Deed.

  • A fixed Administration Fee
  • Trustees Realisation Fee

The amount of these fees will vary depending on the debtor's circumstances, but will be agreed by both the debtor and the creditors before the Trust Deed is approved.

The Fixed Administration Fee: This fee covers all the work which is done leading up to the proposal being considered by the creditors. This includes the drafting of a proposal which includes the production of a comprehensive statement of affairs, the gathering of all key documentation required and extensive analysis of the documentation to ensure that a Trust Deed is both acceptable to creditors and sustainable for the debtor. This is followed by a meeting with the creditors and consideration of any changes requested by creditors. The Trust Deed will only be approved if both the debtor and the creditors agree on any changes. The fixed administration fee varies depending on how much is paid into the Trust Deed but will be confirmed by the IP.

Trustees Realisation Fee: This fee is paid to the IP and covers all the work which is done after the proposal is approved in supervising the Trust Deed and paying the creditors until the Trust Deed is concluded. These fees are normally capped by creditors at between 15 and 20% of realisations and are drawn monthly from the monthly contributions. The IP will explain this to the debtor in further detail.

Where a customer wants to apply for an PTD, Group can provide the initial advice, gather basic information from them and pass this with the customers consent to a licenced insolvency practitioner. If the PTD is later accepted Group will receive a referral fee from the insolvency practitioner.

Important considerations for debtors considering a debt solution:

  • Fees may be charged but these will be fully explained before any agreement is made to proceed.
  • Stopping payments to creditors may create further arrears.
  • It is likely that the ability to get credit will be affected.
  • Not all solutions involve debt write off
  • Assets and property could be at risk with some solutions.
  • Conditions apply and each application will be subject to acceptance and eligibility.