Entering into a Protected Trust Deed is something that you need to consider carefully as you are entering into a form of insolvency.
There are advantages and disadvantages to being in a Protected Trust Deed and these have to be weighed up, but the advantages generally outweigh the disadvantages.
Above all, talking these issues through with an Insolvency Practitioner (“IP”) can help you to find the right way forward for you and your family.
You can ultimately become debt-free
Unlike some other debt solutions, a Protected Trust Deed allows you to pay some of your debt and have the rest written off completely. This compares favourably with other solutions such as a Debt Arrangement Scheme (“DAS”), which requires you to pay off your debts in full.
This can be a real burden on your finances over the long term if you have high levels of debt that will take you years to pay off. A Protected Trust Deed will help to remove years of worry about debt.
The majority of your debts can be written off
As well as driving down the time that you remain in debt, a Protected Trust Deed can also dramatically reduce what you have to pay back. In fact, up to 90% of your debts can be written off – which makes a huge difference to anyone.
A great way of dealing with unsecured debts
Trust Deeds are an ideal way of handling unsecured debts such as store cards, credit cards, personal loans and utility bills. Such debts are loans that have been entered into without providing any security (e.g. your house or another item of value that you own) for the lender.
This can really work to your advantage. Having a Protected Trust Deed wraps in such unsecured debts and removes the threat of any action against you by the lender.
A Protected Trust Deed can deal with HMRC bills or household bills
You can put HMRC tax bills and household bills into a Protected Trust Deed. That can be a huge source of relief.
You don’t need to set up a Protected Trust Deed yourself
You can simply appoint an IP to set up and manage a Protected Trust Deed. They become your Trustee and take charge of your affairs to manage all your creditors. You should choose someone who you feel you can work with.
You will have to disclose everything about your assets and income to them, so you need to feel comfortable with them and their advice.
You can be assured that your Trustee will have the relevant professional experience to ease you through the administration of your Trust Deed. Your Trustee and his / her staff will be on hand to answer any queries you might have throughout the process.
You make regular payments which are convenient and easier to budget for
You make one monthly payment to your Trustee who deals with everything for you. This is also easier for you to budget for, so you know exactly where you stand.
You can generally retain your assets
Although signing a Protected Trust Deed is an admission of insolvency, it essentially safeguards your key assets, which are protected by your appointed Trustee. It means that you can generally retain your home unless you have an exceptionally high level of equity in it.
Equity is the amount you would have left if you were to sell your home and pay back the rest of any outstanding mortgage from the proceeds of the sale.
A Protected Trust Deed provides legal protection
Being in a Protected Trust Deed means that your creditors can no longer pursue the option of taking legal action against you, including sequestration or bankruptcy.
The key to your assets being protected lies in the fact that your assets are conveyed to the care of a Trustee who acts on your behalf and the fact that a Protected Trust Deed is legally binding.
After the Protected Deed has run its course, your assets are of course transferred back to you.
Your creditors will ultimately stop contacting you
Being chased by creditors can be deeply upsetting and embarrassing. It can interfere with your home and family life. It is not uncommon for creditors to contact you at any time of day – including when you are at work and especially if they have a mobile number where they can reach you.
A Protected Trust Deed should save you from all of this hassle. Creditors are dealt with by your Trustee, which means that you don’t have to speak to them at all. This is a great relief for you as you can get your life back on track.
It allows you to focus on the positives, knowing that all the issues are being dealt with for you.
You pay back only what you can afford
Being in a Trust Deed is about paying back affordable amounts over the period of the Deed. Your IP will go through all of your living expenses with you to determine what money you need to be able to meet your reasonable living expenses.
The aim here is to ensure that creditors are satisfied and that you are left with a sufficient amount to have a decent standard of living. It’s about balance and sustainability, the last thing that anyone would want would be for you to enter into a Trust Deed that you simply could not sustain. That’s in no-one’s interest.
A Protected Trust Deed is a good option if you can’t pay off your debts in under 4 years
If you have insufficient disposable income to pay off your debts in full under in 4 years, then a Protected Trust Deed could be an option for you. At the end of the Trust Deed period, any outstanding debt is written off.
They work well for people with regular incomes
If you have a regular income, then a Trust Deed could be the solution for you. Making regular payments is key to sustaining a Protected Trust Deed and ultimately getting clear of your debt. You simply pay what you can afford, as agreed with your IP.
The consequences are less far-reaching than bankruptcy or sequestration
Having a Protected Trust Deed is a much less onerous option than declaring yourself bankrupt. The latter still carries more social stigma and means that you can no longer act as a Director of a company or hold public office. This does not always apply to a Protected Trust Deed.
A Protected Trust Deed can deal with high levels of debt
Often people feel overwhelmed by the level of debt they are facing. The good news is that a Protected Trust Deed is an effective way of dealing with £5,000 or more of debt.
Your partner can also have a Protected Trust Deed
If you enter into a Protected Trust Deed, there is nothing to stop your partner entering into one too. It can be a great way for both of you to deal with your unsecured debts and move forward together. The Trust Deeds would, however, be separate as they deal with individual estates only and cannot be granted jointly.
You will still be able to have a bank account
You should still be able to keep your banking arrangements, although you will not be able to get overdraft facilities.
The plus side is that you should not need those facilities as your payment programme will take account of your reasonable living costs and needs. You will also not be paying interest on your payments as you did before.
Instead, you will be making one regular monthly payment to your Trustee. Interest and charges are stopped.
Fees are affordable and regulated
A fixed administration fee and additional fees based on a percentage of the funds ingathered into the estate will be declared to you and your creditors and the outset. These fees will be taken from the estate when funds are available. They are deducted from your monthly payments and are not additional costs.
People will not generally know that you are in a Trust Deed
Most people will be unaware that you are in a Trust Deed. Unlike being declared bankrupt or sequestrated, your personal details will not appear in the Edinburgh Gazette.
Your Protected Trust Deed will be recorded on the Public Register of Insolvencies, which is maintained by the AIB. In other words, there will be no broadcasting of the fact.
This can be an important consideration from a career and from a family and friends’ perspective. No one wants their private affairs to be the talk of the town.
They are not suitable for secured debts
If you have a large number of secured debts, then a Protected Trust Deed may not be the way forward for you. This is because creditors have the option simply to reclaim their asset.
Your Trustee can claim new assets
If you come into money, or receive, or are gifted any property, within 4 years of the start of your Trust Deed, your Trustee can make a claim on them and use them as a further means of paying off part, or all, of your debts.
It’s an important consideration if you are, or think you are, due to receive an inheritance but it also applies to any other type of windfall payment, such as a lottery win.
They can be problematic for business owners
If you own a business, you may find that your bank withdraws your business banking facility if you sign a Trust Deed. It may also be difficult to get a business banking account elsewhere.
If you are the Director of a limited company, the articles of that company will have to allow for you to enter a Trust Deed, or not exclude you from entering one.
In some cases, business leases for premises prevent you from entering into a Trust Deed. You should check your lease agreement for this.
It could affect your career
Some professions forbid their members from signing a Trust Deed. These can include careers such as banking, accountancy and law. You should check your employment contract carefully.
You will not be able to get credit
Being in a Protected Trust Deed means that it will be virtually impossible to get credit for the period during which you are in the deed – and for up to 6 years from the date when you signed it.
In reality, however, you will be highly unlikely to want to take out credit anyway, even if you could. Instead you should budget carefully. That should be considerably easier now that you have been relieved of the high-interest rate and charges associated with paying unsecured debts, thanks to your Protected Trust Deed.
Signing a Protected Trust Deed cannot stop court action that has already started
Any court action that is in progress cannot be stopped by your signing a Trust Deed. Any enforcement action that has already begun will be allowed to continue.
Your Trustee, however, would endeavour to seek the consent of the creditor(s) in question to accept the terms of your Trust Deed.
We would be delighted to help you with any debt issues you may be experiencing. Please contact us for a Free confidential consultation (with no obligation). One of our team will listen to you and discuss the best way forward.
About the author
Richard Gardiner
Richard is Head of our Corporate Recovery and Debt Solutions Department.
He is a licensed Insolvency Practitioner with the Institute of Chartered Accountants of Scotland.
He manages a large team of managers and support staff who offer the complete spectrum of personal and business debt solutions available under Scottish legislation.