A Trust Deed (TD) in Scotland is a type of personal insolvency. It is different from bankruptcy.
It allows you to deal with your debts with the help of a licensed insolvency practitioner in a manner that is legal, organised and voluntary. You may consider granting a Trust Deed if you cannot make your monthly repayments or are unable to repay your debts within a reasonable period of time.
When you grant a Trust Deed you voluntarily sign a legal document which transfers over all your possessions to an Insolvency Practitioner (subject to a wide number of exceptions – see here). The Insolvency Practitioner then becomes your Trustee. Your Trustee gives your creditors an undertaking that he will use your assets to help pay off your debts.
You also normally have to agree to pay what you can afford to your Trust Deed for 48 months.
In return, your creditors are asked to agree to the trust deed becoming protected.
If they do this, and you do everything you said you would, then in return your liability for your debts are discharged at the end of your trust deed, which is normally after 4 years, but can be five years or longer where you own your home.
How does a Trust Deed become a Protected Trust Deed?
A Trust Deed becomes a Protected Trust Deed (PTD) providing the number of creditors that object to it are not owed more than a third of your debts in total. So if you owe £9,000 then providing creditors who are owed more than £3,000 don’t object to it is, it is normally “protected”. In addition, it can still fail if creditors who make up half in number of the people you owe money to object. For example if you have five creditors and six object, it fails.
Where no creditor responds within five weeks, it becomes protected.
Who can apply for a Trust Deed?
Trust deeds can be granted by anyone who normally lives in Scotland, has more than £5,000 of debts and who have not already been sequestrated for their debts. Where they have been previously been made bankrupt, they need to have been discharged from that bankruptcy and cannot include debts that were included in that bankruptcy.
What are the effects of your Trust Deed being registered?
When the Accountant in Bankruptcy registered your trust deed at the end of the 5 week notification period, the effect is it becomes protected.
The effects of this are:
- Any earning arrestment is lifted;
- No further earning arrestment or bank arrestment can be executed for the debts you have included in your trust deed;
- You will need to make the 48 monthly contributions that you agreed to when you signed your trust deed;
- If you fully co-operate with your trustee and do everything they reasonably request of you, you should get a discharge at the end of your trust deed and this will mean you will no longer be liable to pay the debts that were included in it.
What happens to my car?
What happens to your car in a protected Trust Deed will depend on what you agreed with your Trustee prior to granting your trust deed. However, where you own the car and it is valued at less than £3,000, and your trustee agreed you have a reasonable requirement for it, then it is normally ignored.
Where it is valued as being worth more than £3,000 the Trustee normally has discretion as to how he deals with it. They could take the view it should be sold and the proceeds used to repay your debts, but if this is the case, then they should have discussed this with you and agreed it prior to you granting your trust deed.
Alternatively, he may agree to value it at the end of the trust deed, which is likely to mean it may have depreciated in price and be worth less. If it is worth less than £3,000 at that point and you still have a reasonable requirement for it, he may discharge his interest in it. Another approach may be to agree with you at the beginning you will make additional payments to pay off the excess value over £3,000 either during the trust deed via a third party contribution or at the end, by you making additional instalments.
A third party contribution is where a friend or family member agrees to make some additional payments during the trust deed to satisfy the trustee’s interest in the property.
What happens if my car has been purchased on car finance?
Where your car has been purchased on car finance, such as through a hire-purchase or conditional sale agreement or a Personal Contract Purchase plan, and you have not made the final payment, you don’t own the car.
In such a situation, the Trustee may require you surrender the car back to the finance firm and include any debt you owe them into the Trust Deed. Alternatively, the finance firm may use the fact your granted a trust deed to terminate your agreement with them, request the return of the car and submit a claim to your Trustee to be treated as an ordinary creditor in your Protected Trust Deed.
Where you have a reasonable requirement for the car, however, and you can make a contribution to your Protected Trust Deed, the Trustee will often allow you to keep the car, providing you maintain your payments to the car finance firm. The car finance firm also have to agree, but providing they are getting paid, they usually won’ t object.
Treatment of you home in Protected Trust Deeds
How you home is treated in a Protected Trust Deed depends on whether you own it or not.
If you rent your home, then usually the Protected Trust Deed will not affect your home, unless you include rent arrears into your Trust Deed. If you include rent arrears into it, your landlord may choose to try and evict you. A Protected Trust Deed does not necessarily protect you from this.
This is something that should be discussed with your Trustee and your landlord before you grant the Trust Deed.
If you own your home, this is a more complicated and again you should discuss this with your Trustee.
If you property has no equity or a minimum amount of equity , the Trustee may be happy with a off payment of £500 to discharge their interest in your home.
This can be paid during your Trust Deed by a third party contribution (see above), or at the end of your 48 monthly contributions.
Where the equity is more, the Trustee may look for you to pay off the equity at the end of you 48 months, by agreeing with you that you will make another 12 monthly contribution.
Granting a Trust Deed does not necessarily mean you will lose your home, however, there is a risk of it. You should always, therefore, as your Trustee how you home will be dealt with before you granted your Trust Deed.