Protected trust deeds
A protected trust deed is the Scottish equivalent of an IVA. It writes off remaining debt after an agreed period, but it is a form of insolvency.
A trust deed is a voluntary agreement under which you transfer your estate to a trustee, a licensed insolvency practitioner, who distributes it among your creditors. You make monthly contributions for an agreed period, usually four years, and the remaining included debt is written off at the end.
“Protected”
A trust deed only becomes protected if a sufficient proportion of creditors do not object within the statutory period.
Once protected, it binds all ordinary creditors, including those who did not agree. They cannot pursue you, and diligence must stop.
If a trust deed does not become protected, creditors who did not agree can continue to pursue you, which is why the protected status matters so much.
Council tax and trust deeds
Council tax arrears outstanding at the date of the trust deed can be included. Once protected, your council cannot enforce them and any arrestment must stop.
Ongoing council tax must continue to be paid.
Councils do sometimes object to trust deeds, particularly where the council tax element is a large share of the total.
Your home
Where you own property with equity, you will normally be expected to deal with it, usually by a third party buying out the trustee’s interest, or by extending the term.
If protecting a home is the objective and you have surplus income, a Debt Arrangement Scheme is very often the better route, because it is not insolvency and does not put the property into a trust.
Trust deed or DAS?
| Protected trust deed | Debt Arrangement Scheme | |
|---|---|---|
| Type | Insolvency | Statutory debt management |
| Debt written off | Yes, at the end | No, repaid in full |
| Interest and charges | Frozen | Frozen, written off on completion |
| Typical duration | Around four years | As long as needed at an affordable rate |
| Effect on home | Trustee has an interest in equity | Not directly affected |
| Credit file | Six years | Recorded, generally viewed less severely |
| Fees | Trustee’s fees, from your contributions | No adviser fee in the public sector |
| Employment | Some roles affected | Fewer restrictions |
The general rule: if you can repay in full over a reasonable period, DAS. If you cannot, a trust deed or sequestration.
Fees and risks
The trustee’s fees and outlays come out of your contributions. Ask for the fee basis in writing before you sign.
If a trust deed fails, the protection falls away, creditors can resume action, and the contributions you have made are not returned. Some failed trust deeds end in sequestration.
Getting advice
Take free advice from an approved money adviser before signing. Firms that sell trust deeds earn fees from them; a local authority money adviser or a Citizens Advice bureau does not.
Questions people ask in Scotland
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