A Protected Trust Deed is an agreement reached between an individual in debt and their creditors. It is designed to help tackle debts in excess of £8000, and is a formal and legally binding arrangement in which repayments on the debt are made to a licensed Insolvency Practitioner who acts as a Trustee. During the process you will be protected from legal action from creditors, meaning your home, car and other assets are safe from the threat of repossession, while the single, affordable monthly payment which is administered by your Trustee allows you the breathing space to get back on your feet and enjoy financial stability again. The scale of this repayment is negotiated with your creditors to ensure it is reasonable and affordable, meaning you can be confident that you will be able to abide by the plan we put in place. At the conclusion of your Protected Trust Deed, providing you have stuck to the terms of the agreement, your debts are written off. Although this process is voluntary, once you enter into a Protected Trust Deed it is legally binding.
For many people Protected Trust Deeds are a more effective debt solution than the Debt Arrangement Scheme (DAS), not least because debts are written off rather than just having interest frozen. However, a Protected Trust Deed is not always the best solution – we would suggest discussing this option with a debt adviser first. In the meantime you can consult our article: DAS vs Trust Deed.
In this guide we will look at a range of questions:
- Am I eligible to enter a Protected Trust Deed?
- How do I set up a Protected Trust Deed?
- Advantages and Disadvantages
Am I eligible to enter a Protected Trust Deed?
Protected Trust Deeds are only available to those living in Scotland, and who have been resident here for the last six months. For those based in England and Wales a Protected Trust Deed is not available, but there are other suitable alternatives for tackling such debts, including an IVA, or Individual Voluntary Arrangement.
Individuals may not enter into a Protected Trust Deed themselves, as the process requires an Insolvency Practitioner to act on your behalf. They will perform the role of Trustee, first sitting down with you in order to establish your level of income and the total monthly amount you are currently paying on your debts. After assessing your earnings, financial commitments – such as mortgage, utilities and council tax – and outstanding debts your Trustee will set aside your ‘disposable’ income for repayment to your creditors.
In this way you can be sure that you are protected from legal threats, repossession of assets or arrestments on your accounts throughout the term the of the PTD. You are still eligible to enter a PTD if legal action has already been taken against you, although any such action will remain in place during the process.
How do I set up a Protected Trust Deed?
In order to enter a Protected Trust Deed you should first make contact with a licensed Insolvency Practitioner, to arrange a realistic plan tailored to your own personal finances and situation. Our experienced and highly-trained team have gained a reputation for giving ethical advice and building agreements which are likely to gain creditor approval. Once an affordable level of monthly repayments has been established your Protected Trust Deed can be established and offered to your creditors for their approval.
Once the proposal has been accepted by your creditors you can then begin to repay your debts with a single monthly payment.
Creditors, however, have the right to reject a proposed Protected Trust Deed. If the proposal is rejected, or you cannot afford the minimum monthly payment, you will not be able to enter the PTD. If you find yourself in this situation there are still other appropriate options available to you, such as Sequestration. Our team will be happy to advise you of other debt solutions.
What happens next?
At this point, if you decide to enter into a Protected Trust Deed, you will now begin making the payments as outlined in the proposal. Your Insolvency Practitioner will make sure you are fully informed of how the payments are scheduled and what they will be used for, including outlining any charges and when they are due.
Once the final repayment has been made a letter of discharge will be issued. This confirms that your Protected Trust Deed has been successfully concluded. After you have been discharged from the PTD the original debt is written off and those creditors will no longer be able to pursue you for payment.
Will my home or other assets be at risk if I enter a Protected Trust Deed?
You may be required to sell assets or release equity on your home if you are a homeower in order to help pay your creditors.
It is very important to us that we protect your home throughout the process, and will make sure you are fully aware of any such risk to your home or assets if you are entering a PTD. A responsible lender will make sure that any risk to your property is minimised, and will work to avoid the sale of your home. This can be done either by re-mortgaging or by arranging for payments to be made on your behalf by a third party.
If you own your home the terms of the Protected Trust Deed will determine the level of equity on your home from the start. The equity on your home is the difference in its present value and the amount which remains outstanding to the secured lender.
If there is a large equity on your home it will be released in order to allow the Trustee to use those funds to pay creditors. It is very unlikely that your Trustee will require you to sell your home, and you will be fully advised of the risk of this happening before you enter the PTD as well as being informed on the different ways in which the equity on your home can be released.
How long can I expect the process to take?
Depending on your disposable income and the terms which are agreed with your creditors the Protected Trust Deed will normally last for a period of 48 months. It is possible for this to be extended by a year if required. At the end of that time, and provided you have fulfilled the terms of the agreement, any remaining debts are normally written off. Although this is generally the case, there are also certain exceptions.
Advantages and Disadvantages
The main advantage of entering a Protected Trust Deed is that it offers a clear and attainable solution to your debt problems. Its aim is always to make you debt free as quickly and simply as possible.
Payments are established in a way which takes your personal circumstances and existing financial commitments into account, and you will be supported by your Insolvency Practitioner throughout the term of the PTD. This plays a major role in helping to minimise the the stress of dealing with creditors, since you are no longer the point of contact for those seeking repayment for your debts.
The Protected Trust Deed also allows you to take control of your finances again. By guarding yourself from legal action and establishing a schedule of repayments you can find the time and space in order to set yourself on a secure financial footing.
Importantly, once you conclude the Protected Trust Deed your debts are written off and you can enjoy being debt free.
There are, however, a number of disadvantages associated with entering a Protected Trust Deed.
Initially, creditors will have the right to reject the PTD, and once it has been accepted you should be aware that it is legally binding. You will not be able to exit the Protected Trust Deed once it begins, unless by meeting the terms of the agreement in full or to enter Sequestration if you are unable to make the repayments as agreed.
A PTD is also designed to deal with unsecured debts exceeding £8000. Secured debts, such as hire purchases and mortgages, are excluded from Protected Trust Deeds since they are already secured against your assets.
There will also be long-term effects, since entering a PTD will also affect your credit rating. It will take seven years from its conclusion for the Trust Deed to be removed from from your credit file. This will affect your ability to obtain credit.
You may also find that entering a Protected Trust Deed will affect your working life in certain professions. If you work in the financial industry offering advice it may affect your employment, and entering a PTD may place you in breach of your conditions of employment. You do not, however, have to declare your Trust Deed to an employer, and the PTD is wholly confidential agreement made between you, your creditors and your Trustee.