Protected Trust Deed or Debt Management Plan

Which debt solution should you choose?

A Protected Trust Deed or a Debt Management Plan.

Deciding which of these two debt solutions is best for your specific circumstances can’t be determined by reading an article alone. At some point you will have to allow a professional debt adviser to listen to your circumstances in detail in order to offer you guidance based on the facts surrounding your true situation.

A guide can only highlight and discuss things in general terms whereas a consultation deals with factual information.

However, this guide will provide some of the more obvious differences between Protected Trust Deeds and Debt Management Plans in order to help you appreciate how these two debt solutions differ from each other.

What is a Debt Management Plan?

A Debt Management Plan is an ‘informal’ arrangement.

This means that there will be NO legally binding contract between you and your creditors for the duration of the plan.

This also means that a Debt Management Plan cannot guarantee to provide protection from creditors.

For instance:

Creditors retain the right to take legal action against you.

Creditors can continue charging interest on your outstanding balances.

Creditors can continue making demands for higher payments throughout the term of the Debt Management Plan.

Debt Management Plans do not have a fixed time frame either. The repayment term of a Debt Management Plan is determined by 2 things – the size of your debt and the amount of money you can afford to pay back each month.

The lower your debt level is, and higher your Debt Management Plan’s repayments are, the quicker the Debt Management Plan will finish.

This is good if you have a small debt and you have plenty of money available each month with which to repay it, however, not so good if your debt is high and you are struggling to afford any repayments at all.

Another factor to consider with a Debt Management Plan is that there will be a full repayment to the creditors and there will be no debt forgiveness. Instead, the Debt Management Plan will continue for as long as it takes to repay the whole amount of money that was owed, the i.e. FULL OUTSTANDING BALANCE.

There is also a cost incurred in most Debt Management Plans, especially when using a commercial Debt Management Company. This cost is deducted from any payments paid into the plan and can vary significantly between companies, but it most cases the cost will be at least £30 per month.

If, therefore, you can afford £180 per month in repayments, and your Debt Management Plan company charges you £30 per month, then your creditors would only get £150 – split between them.

On a debt of £15,000 this would add nearly an extra year and a half to the repayment term – turning it from 83 months to 100 months

What is a Protected Trust Deed?

In contrast, a Protected Trust Deed is a formal debt solution. This means there is a legally binding contract between you and the creditors.

This, in turn, means that a Protected Trust Deed provides legal protection from creditors, once a Trust Deed becomes Protected.

As soon as your Trust Deed becomes Protected:

Creditors cannot take legal action to recover the debt.

Creditors must freeze the interest charges on the outstanding debts.

Creditors must correspond only with the Trustee with regard to information about the Trust Deed.

The Protected Trust Deed has a fixed repayment term which is normally 3 years and this is a where the two debt solutions differ most.

All the costs for the Protected Trust Deed are deducted out of the repayments made to the Trustee and there are no extra payments to be made – you simply pay what you can afford to the Trustee and the costs are dealt with as part of the process.

In most cases, a Protected Trust Deed will successfully complete before the total debt has been repaid, which has the effect of legally writing off any remaining unpaid debts. This means in most cases you would be completely DEBT FREE after just 3 Years of repayments.

In general terms, we can summarize like this….

Debt Management Plans are generally able to help people with short term financial problems, such as cash flow issues caused by short term illness or reduced income. They allow a temporary situation to be kept under control and allow the creditors the option to take action if the situation does not resolve itself quickly enough for their liking. They provide an opportunity to deal directly with creditors or use a 3rd party to assist in communications, whilst enabling a debtor a chance to keep a degree of control over their situation and how they intend to resolve it.

Protected Trust Deeds on the other hand are able to deal with more serious and long term debt problems. They allow an insolvent person to avoid bankruptcy, or sequestration, and protect them from creditors taking legal action against them. They have a fixed and relatively short term, which provides the possibility of debt relief in most cases. They Protect the applicant from being harassed by contact from creditors and they block creditors from charging further interest on any outstanding balances.

If you would like to discuss your circumstances with a specialist Trust Deed Adviser and establish which is the best solution for you, be it either a Protected Trust Deed or a Debt Management Plan then call our Protected Trust Deed Helpline on 0800 088 7503.