Protected Trust Deed or Bankruptcy

A Protected Trust Deed offers an alternative debt solution to Bankruptcy for people living in Scotland.

As such, both Protected Trust Deeds and Bankruptcy offer people living with a severe debt problem in Scotland two very different solutions, both of which will ultimately lead to debt freedom.

The question is this, if you live in Scotland and are struggling to deal with an overwhelming debt problem, how can you establish which of these two debt solutions is the most suitable solution for you, be it either a Protected Trust Deed or Bankruptcy.

The answer will almost certainly be determined by your personal circumstance and, to some degree, your personal preference.

This is because your situation is unique to you. Therefore, you will need to establish just how each of the two debt solutions would impact on your day to day life, not just now, but also in the years to come.

You can do this by simply calling our Trust Deed Helpline for FREE on 0800 088 7503 and asking for a private and confidential consultation. This will provide you with the information you need to be able to make an informed choice. However, if you are not quite ready for our help just yet, then please read on.

Firstly, many people will feel a moral obligation to repay as much as possible to their creditors.

Some would feel there is a stigma attached to Bankruptcy and, as such, would do everything within their power to avoid having to declare themselves bankrupt.

Many people find it difficult to ignore these emotional responses, and they quickly realise that it is one or the other of these reasons that defines the Protected Trust Deed as their most suitable solution, as a matter of personal preference.

We each have differing expectations of ourselves, and have varying degrees of determination to enable us to do what we believe to be the right thing – whatever that maybe.

For others, the decision will be more based on the practical differences between a Protected Trust Deed and Bankruptcy.

Both a Protected Trust Deed and Bankruptcy are formal debt solutions, which means they both form part of the Bankruptcy Scotland Act 1985, which was amended in April 2008 and both are administered by a Trustee, whose role in both debt solutions is to ensure that the relevant legal process is conformed to by all concerned parties – so at first glance they appear quite similar.

But in truth the main differences between the two options really start to become more obvious when a closer look is taken at how the Trustee will deal with certain situations within a Protected Trust Deed compared with the way he is likely to deal with the same situation in a Bankruptcy.

For example: If you have a vehicle which is being purchased through a Hire Purchase agreement, then in a Protected Trust Deed the Trustee will normally allow you to maintain the Hire Purchase payments as part of his essential living costs. The Hire Purchase company will, in most circumstances, allow the agreement to proceed as normal, without any action being taken.

In contrast, however, it is quite possible the Hire Purchase company will consider a Bankruptcy as a breach of contract. They would have the ability to repossess the vehicle and sell it on the open market to recover as much of the outstanding debt as possible. If there was a cash surplus generated by the sale, the excess funds would be transferred to the Trustee. If the sale price was insufficient to cover the outstanding finance the Hire Purchase company would make a claim for the shortfall from the Bankrupt’s estate.

Obviously, the difference between the two solutions in this example would only be relevant to people who had a current Hire Purchase Agreement, but the example itself serves to demonstrate how personal circumstances can vary the overall impact either solution may have.

A more widespread example of the differences found between the two solutions can be demonstrated when we look at how the Trustee will treat the asset of your car in a Trust Deed compared to Bankruptcy.

Essentially, any vehicle with a value above £1,000 would be vulnerable in a Bankruptcy. The Trustee would look for the vehicle to be replaced with a less valuable alternative, with the difference in value being taken by the Trustee.

However, with a Trust Deed, the applicant could expect to retain a vehicle with a value of up to £4,500, so long as they could demonstrate the vehicle was essential to the applicant’s ongoing ability to earn an income.

Because the Protected Trust Deed is a voluntary arrangement, it offers the applicant the chance to avoid his assets and circumstances being scrutinised to the same depth as they would in a Bankruptcy. It offers more privacy and protection and, even though it is listed on the public register of insolvencies, it is still fundamentally a private arrangement.

Therefore, by offering a better financial settlement through the Protected Trust Deed, the applicant can seek to protect himself from the possibility of having restrictions placed against him, compared to what might happen in the case of his bankruptcy.

By allowing the Trust Deed to become Protected the creditors accept the terms of the Trust Deed, without any added restrictions.

This is different in a Bankruptcy, for the Trustee has the power to report the bankrupt to the Accountant in Bankruptcy, if he feels there are grounds for a Bankruptcy Restriction Order. In turn, this may lead to the Accountant in Bankruptcy making an application to the Sheriff, asking for a Bankruptcy Restriction Order being made against the bankrupt.

This could be for a number of reasons including gambling, rash speculations, spending money without having a reasonable expectation of being able to pay it back or when there has been a deliberate ‘Transaction at an Undervalue‘.

These are but a few of the differences between a Protected Trust Deed and Bankruptcy.

It would, of course, be impossible to highlight every difference between the two debt solutions within this article.

We have tried to demonstrate as clearly as possible that the personal circumstances of each client will have a significant impact on how a Protected Trust Deed or Bankruptcy will deal with their specific debt problem – and in turn, which solution is in their best interests, be it a Protected Trust Deed or Bankruptcy.

If you would like to discuss your personal circumstances with one of our Protected Trust Deed advisers, you should call our Trust Deed helpline on 0800 088 7503 and one of our advisers will explain the practical differences for your personal case.