If you are struggling with debt, you should seek advice as soon as possible form a suitably qualified person such as an insolvency practitioner or your local Citizens Advice. Seeking advice and dealing with your debt at an early stage may help you avoid some of the more serious consequences of being in debt, such as legal action by your creditors and bankruptcy. Please call 0141 280 3221 for free, confidential and impartial advice.
A Trust Deed is a voluntary, yet legally binding agreement, between an individual and their unsecured creditors. It is one of the two forms of personal insolvency in Scotland, the other being Sequestration which is often referred to as Bankruptcy. A trust deed is administered by a trustee who must be an insolvency practitioner. Normally in return for agreeing to pay a monthly contribution from your income for a set period of time and your assets your creditors will agree to write off your debts. The trustee will liaise with your creditors for you and you no longer have to make repayments to your creditors or deal directly with them. So long as you maintain your monthly contributions and cooperate with your trustee your creditors cannot take any action against you and when you successfully finish your Trust Deed the remainder of your debts will be written off.
- The trust deed lasts for a fixed period of time, usually 4 years
- You no longer have to deal with your creditors yourself, the trustee takes care of this
- At the end of the trust deed your ordinary debts are written off
- The monthly payments will be affordable, based on your individual circumstances
- A better alternative to bankruptcy for your creditors as costs are lower so more money is returned to your creditors
- Your home can be protected
- In some cases, assets will have to be sold for the benefit of the creditors.
- Your credit rating will be affected for around 6 years
- A protected trust deed may prevent you from doing some jobs
- Certain debts cannot be discharged by a protected trust deed, for example student loans, fines/penalties/compensation/forfeiture orders or any liability due to fraud
- The Protected Trust Deed will be recorded in the Register of Insolvencies which is a public record for anyone to search
Trust Deed FAQ’s
Some employers do not allow people who have signed a trust deed or are bankrupt to work for them, most commonly financial institutions. Before you sign a trust deed, you should check the terms of your contract carefully or speak to your employer.
Yes. It is likely that credit reference agencies will record details of your trust deed on your credit file for 6 years.
Some public bodies have rules stopping anyone who has signed a trust deed from holding office. It is important you check this before signing a trust deed.
So long as the articles of association of the limited company do not prevent someone who has signed a trust deed acting as a director there is no legal bar to doing so. It is important you check this before signing a trust deed.
Normally no. It is your trustee’s duty to realise the value from your assets, to realise funds with which to repay your creditors. There would not normally be any assets left over at the end of your Trust Deed.
If your creditors are unhappy with the way your trustee has dealt with your trust deed, they can ask The Accountant in Bankruptcy to audit your trustee’s accounts or to investigate a complaint. They may also complain to your trustee’s RPB and apply for direction from a sheriff in a Scottish Court.
If you are unhappy with your trustee it is very important that you talk to them about your concerns. Your trustee is the person who will decide whether or not you have met your obligations and whether you will be discharged from your debts when the trust deed ends.
All trustees must be members of a Recognised Professional Body (RPB). Your trustee will give you details of their RPB and you can contact them if you are unhappy with the way your trustee has dealt with your trust deed. Details of a trustee’s RPB should also be on their headed letters.
The Accountant in Bankruptcy has the power of supervision and audit of protected trust deeds. The Accountant in Bankruptcy can investigate complaints against trustees and issue a direction to a trustee if she does not believe they have acted appropriately.
You may also apply to a sheriff in a Scottish Court to direct your trustee if you believe they have not acted appropriately. It is recommended that you always obtain legal advice, if you are considering taking court action.
You should raise your concerns with your trustee before you make a complaint.
A trust deed is an agreement you entered into voluntarily and if you fail to keep your side of the agreement there are implications for you.
If you do not co-operate with your trustee during the period of your trust deed your trustee may decide to have your contribution deducted directly by your employer or your trust deed will be terminated and your debts will not be written off. Furthermore your trustee may decide to petition the Court for your Sequestration.
At the end of your trust deed, you will be discharged from all the unsecured debts you had at the time you signed your Trust Deed providing your trustee considers that you have met your obligations under the Trust Deed.
These creditors will not be able to pursue money that was owed to them prior to you signing the trust deed.
There are some debts that are not written off at the end of your trust deed.
> fines, penalties, compensation and forfeiture orders imposed by any court;
> debts taken out after signing your Trust Deed;
> any liability due to fraud including benefit overpayments;
> any obligation to pay aliment;
> student loans; and
> money owed to someone who holds a security on your property, such as a mortgage or secured loan.
Your trustee will reassess your contribution as and when your circumstances change, for example if you are made redundant a child is born etc. If your income goes up, your trustee will ask you to pay a higher contribution. If your income goes down, your trustee will agree to reduce or completely suspend your payments.
If you acquire new assets within 4 years of signing your trust deed, such as an inheritance, lottery win or significant gift you must inform your trustee and these too must be paid into your Trust Deed.
If you sell or dispose of a home which was excluded from your protected trust deed, any money you are left with after paying your secured loans and meeting the cost of the sale must be passed to your trustee.
If you own your home, you may have the option of asking your secured creditors (mortgage lender) for their permission to exclude your home from the trust deed. If your secured creditors agree, the rest of your creditors will be informed of this when they are asked to agree to the protection of your trust deed. If your creditors do not object to your trust deed becoming protected, you will keep control of the equity in your home. The rest of your assets pass to your trustee as normal. However, it should be noted this is highly unusual and normally creditors will not accept this as they tend to prefer you attempting a remortgage or paying for an extra year.
If your creditors do not agree to your trust deed becoming protected because your home will be excluded from the trust deed, you can propose another trust deed which includes your home.
How can I exclude my home from my trust deed?
The money needed to fund your trust deed usually comes from two sources, contributions from your income and the sale of things that you own (assets). You will normally be expected to pay a contribution out of your income. Your trustee will advise on how much you should pay after allowing for what you need to live on each month. There will be a standard approach to the calculation of income and expenditure. You will usually be expected to pay a contribution for 48 months, although you may agree a longer contribution period with your trustee.
A trust deed cannot normally become protected unless you pass control of all your assets to your trustee. However, in certain circumstances, and only if your creditors agree, a trust deed which excludes your home may become protected.
It is your trustee’s duty to realise the value of your assets for the benefit of your creditors. However, your trustee is required to allow you to keep essential things that you need for your house and family, such as, household appliances and children’s toys.
Your trustee may also agree that you can keep your car if it is of reasonably low value and you have a reasonable need for it. Your most valuable asset is likely to be your home. Unless your home has been excluded from your trust deed by agreement with your creditors, you may be required to release any equity in your share of your home.
Your trustee will help you to do this and will explore options that avoid selling the house on the open market. They may, for example, allow another family member to buy out your interest or for you to arrange a remortgage at the end of your trust deed. Your creditors will most often agree to you attempting to release funds by way of a remortgage failing which you will simply pay your agreed contribution for a further 12 months. You should discuss this with your trustee but remember that any money tied up in your home will have to be dealt with eventually and your trustee may have to sell your home if no agreement can be made over the property.
It is important that you keep up repayments on your mortgage after signing a trust deed, because a trust deed will not prevent repossession if you fall behind on your mortgage.
Your trustee will be paid a fixed administration fee and an additional fee based on a percentage of funds collected during the trust deed, for the work done in administering your trust deed. This is agreed at the outset by your creditors when they accept the proposal to them. The fee is paid out of the funds the trustee ingathers and before any money is available to repay your creditors.
Before you sign your Trust Deed the trustee should have explained his fees in detail to you.
Your trustee’s fees can be audited by The Accountant in Bankruptcy who is a Scottish Government official with the responsibility for supervising personal insolvency in Scotland.
As a general rule, creditors will expect you to repay as much as you can afford. Creditors do not have to accept the amount that has been offered. Creditors will not agree to a trust deed unless they think the offer you have made to repay part of what you owe to them is reasonable. They probably won’t agree to your trust deed if they think you can afford to pay more than you have offered or if they think that you ought to be made bankrupt.
By allowing your trust deed to become protected, your creditors agree to its terms and they cannot take any further action to recover what you owe them, or to make you bankrupt.
When setting what you must pay each month to your Trust Deed your trustee will normally allow a reasonable monthly payment to your pension fund to continue. So long as you don’t cash in your pension during your Trust Deed and you haven’t made excessive pension contributions in the lead up to signing your Trust Deed your pension will not be touched.
So long as your car is not unreasonably expensive or valuable and you need it for work or family reasons then you will normally be able to keep your car, possibly paying extra contributions to your Trust Deed to release the value of your car if it is worth over £3,000.
Your trustee will work with you to try and avoid this outcome and normally your creditors will accept you attempting to remortgage to release funds and if you are turned down by the mortgage providers then extending your trust deed for a year. However, occasionally it will require your house to be sold but this will be fully explained before you decide to sign a Trust Deed.
Normally 4 to 5 years so long as you fully co-operate with your trustee.
We will only write to your creditors to inform them of your Trust Deed. There is no newspaper advert or courts involved and so long as you co-operate with your trustee your employer will not be contacted. However, your Trust Deed will be recorded on the public Register of Insolvencies which is normally scrutinised only by financial organisations but it is a public register.
When you sign a trust deed your trustee will:
prepare a notice for publication in the Register of Insolvencies (RoI). The RoI is a public record which anyone can access. This means that your trust deed will come to the notice of organisations like banks and credit reference agencies;
write to all your creditors and ask them to agree to your trust deed; and
if a sufficient proportion of your creditors agree to your trust deed, your trust deed becomes protected.
If your creditors object and your trust deed does not become protected, they can take you to court to get back the money that you owe. They can also ask the court to make you bankrupt.
If your trust deed fails to become protected because your creditors have objected to it, you can also apply for your own Sequestration (often called Bankruptcy).
Protected means that it is binding upon you and your unsecured creditors. This means that, provided you comply with the terms of your protected trust deed, your creditors cannot take further action to recover the money you owe or make you bankrupt. Your secured creditors may, however, still take action to take possession of your home if you fall behind with your mortgage payments. A protected trust deed prevents you from applying for your own bankruptcy or for a Debt Payment Programme under the Debt Arrangement Scheme (DAS).
If you take on any new debts after you sign the trust deed, you will not be protected from legal action by your new creditors.
Like bankruptcy, a protected trust deed can affect your credit rating and can also prevent you from doing some jobs. If you do not succeed in getting your trust deed protected, your creditors may be able to make you bankrupt.
You must have a minimum of £5,000 of debt to have a protected trust deed.
Signing a trust deed is a serious step – you must be sure that you understand what you are signing.
Before you sign, your trustee must give you advice about the consequences of signing a trust deed and provide information about the alternatives. The alternatives may include a Debt Payment Plan under the Debt Arrangement Scheme, a Debt Management Plan, Sequestration or a full and final settlement with your creditors. The trustee must also give you a copy of the Scottish Government’s Debt Advice and Information Package and explain his/her fees before you sign anything.
You should be aware that the trustee will charge for the work they do and that you can choose who your trustee will be. Your trustee will set out a fixed administration fee and an additional fee based on a percentage of the funds collected during the trust deed. These fees will be recovered from money ingathered by your trustee during your trust deed and are not be paid separately.
A trust deed is a voluntary agreement with your creditors (the people you owe money to) to repay part, or all of what you owe them.
A trust deed transfers your rights to the things that you own (assets), to a trustee who can sell them to pay your creditors.
A trust deed will normally include a contribution from your income for a set period; normally 48 months.
Your Trust Deed will be administered by a trustee who must be a qualified insolvency practitioner.
Insolvency practitioners are regulated by law and must be members of an approved governing body.