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What’s the difference between a protected and unprotected Trust Deed?

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Published 11th April 2022

What does it mean when a Trust Deed becomes protected?

A Scottish Trust Deed is a formal debt procedure that enables you to pay off a proportion of your debts when they have become unaffordable. Any amounts remaining at the end of the Trust Deed are written off, offering you a fresh financial start.

Trust Deeds can be protected or unprotected, and it’s important to know the difference between the two. Essentially, whether or not a Trust Deed becomes protected depends on the proportion of creditors that vote in its favour.

If you own property you’ll also have to include it in order for the Trust Deed to become protected. If there’s equity in the property it may be used to repay some of your debts, although unlike sequestration, you may not need to sell your home.

How do Trust Deeds work?

The purpose of a Trust Deed is to enable a debtor who is struggling to keep up with repayments to pay off their unsecured debts to the best of their financial ability. A new instalment plan is negotiated to repay over an extended period of time, typically four years.

Creditors included in the Trust Deed must vote on whether to accept the new arrangement within five weeks of the proposal being made. The problem is that some may veto the Trust Deed if they believe they can recover more of their debt via a different route, such as compulsory liquidation.

Creditors vote to reject or protect the Trust Deed

Creditors have five weeks to vote on the proposal, and if sufficient numbers vote in favour the Trust Deed is protected. In order to become protected, 50% or more of creditors, or creditors representing more than 33% of the total debt, must vote for the Trust Deed.

During this five‐week period objections might be raised by creditors and then settled by the insolvency practitioner, or there may be no objections at all. In either case, the Trust Deed will become legally binding.

What are the implications of an unprotected Trust Deed?

If a Trust Deed is unprotected it means that creditors aren’t legally obliged to accept the proposed repayments and may still undertake legal action against your business, leaving you at risk of being forcibly wound up.

A further consequence of an unprotected Trust Deed is that charges and interest can be added to your debts. These additional amounts can significantly increase the overall amount that you owe.

The difference between protected and unprotected Trust Deeds

For a Trust Deed to achieve its main aim of helping you pay off unaffordable debt, it’s important to gain protected status. This makes the new arrangement legally binding, and provides you with certainty over your repayments.

Your creditors cannot take legal action against you as long as you pay the required monthly amount. Furthermore, there won’t be any additional charges or interest and you will no longer have to face creditor pressure in relation to these debts.

It’s important to seek trusted advice and guidance when considering a Scottish Trust Deed ‐ a reputable company will only put forward Trust Deed proposals they believe are likely to be sanctioned by creditors.

Scotland Debt Solutions has been helping Scottish residents to escape debt since 1989, and can establish whether a Trust Deed is your best option. If so, we’ll put forward a solid proposal to your creditors and support you throughout the process.

Please get in touch with our expert team for more information and independent advice. We operate offices throughout Scotland and can offer you a free, same‐day meeting to discuss your situation.

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FAQ

FAQ on Trust Deeds

Do I have to get my creditors to agree to my trust deed?

Applying for a trust deed has been on my mind for some time but I’m concerned that all creditors may not agree to my trust deed? What if one of them doesn’t agree?

How does entering a Trust Deed affect your credit rating?

Yes, although a Trust Deed is not a court process the creditors you have made defaults with are likely to notify the credit reference agencies that you have missed payments. There will be an entry on the Register of Insolvencies that you are subject to a Trust Deed.

How long does it take to set up a trust deed?

A Trust Deed can be setup very quickly. Once you have discussed your financial situation in full with an Advisor and taken time to consider that this is the most appropriate option taking all factors into account. The Trust Deed document and accompanying paperwork can be signed which then gives the Trustee the relevant powers to act on your behalf. The Trustee will make contact with all your creditors and from that point you can stop making payments to the individual creditors and pass all correspondence for the Trustee to deal with. Thus relieving you from the pressure instantaneously.

What are the consequences of not keeping up payments of a trust deed?

The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level.

What are the set-up costs of a Trust Deed?

There are no initial setup or additional hidden costs in a trust deed. The Trustee’s fee’s and outlays for administering your trust deed are met from the contributions you pay in on a monthly basis or/and from the assets which may have to be realised in your Trust Deed. The Trustee is paid prior to making a distribution to your creditors. The Trustee’s fees are broken down into three categories, fixed fee, percentage of realisations and costs and expenses associated with the Trust Deed.

What does a protected trust deed mean?

A protected Trust Deed is binding on your creditors. It means that if you comply with the terms of your trust deed then the creditors cannot take any further action against you to recover any debts you might be due to them. They cannot arrest your earnings or petition for your sequestration whilst you are subject to a Protected Trust Deed. Unlike an ordinary Trust Deed which is not binding on your creditors. If when presented with your Trust Deed Proposals more than half in number or one third in value of creditors object to your Trust Deed then it will fail to reach protected status.

What would the consequences be if I missed a trust deed payment despite my circumstances clearly changing?

The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level. In addition to this the Trustee will explain at the outset of the Trust Deed that should you have any change in circumstance which will affect your ability to make a contribution you must update him with immediate effect. If you have a change in circumstance and notify the Trustee of this providing evidence to substantiate your change in circumstance. The Trustee will take all factors into account before making a decision as to whether to reduce, suspend, stop or infact increase your contribution. It may be depending on the circumstance that your Trust Deed period is extended or shortened or that you are able to suspend the payments until such time as your Income position improves.

Whats the difference between an IVA and a Trust Deed

The main differences between and IVA and Trust Deed are that one is an English Debt Relief process and the other is a Scottish debt relief process. An IVA can only be accessed by English and Welsh residents whereas Trust Deeds are only available for Scottish Residents. In an IVA you must have minimum unsecured debts of £15,000 whereas a Trust Deed is a minimum of £5000. The duration is also slightly different in that an IVA generally lasts for sixty months whereas a Trust Deed lasts for forty eight months.

Will all my debts be covered by the terms of a Trust Deed?

I am a single mother of two children with a number of debts and loans, including some spiralling payday loans that are stressing me out. I have looked into debt management plans and trust deeds and it seems as though the trust deed is the best option but I’m not sure whether I can consolidate all my debts into one monthly payment? Can loans be included in this?

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