The Cons or Disadvantages of a Protected Trust Deed

A Protected Trust Deed provides several substantial pros, or advantages to the applicant.

However, as with all debt solutions, there are some cons or disadvantages associated with a Protected Trust Deed, which you will need to consider.

It is quite natural for people to focus on the beneficial side of Trust Deeds, but we believe you should be aware of the downsides too, in order to get a balanced view.

We believe that once you know the facts you’ll be able to reach an informed decision on whether a Protected Trust Deed is the right choice for you.

Here are the Cons or Disadvantages of a Protected Trust Deed.

  • A Protected Trust Deed Requires Creditor Acceptance. Before a Trust Deed can become ‘Protected’ the Trustee will ask your creditors if they agree to be bound. If enough of your creditors reject your proposed Trust Deed, then it will fail to become ‘Protected’ and without achieving protected status it ceases to be a viable total debt solution.
  • Waiting For Protection Can Take Time. It can take up to 5 weeks for your Trust Deed to become ‘Protected’, and during this period your creditors are still free to chase you for payments.
  • The Protected Trust Deed Is A Formal Agreement. Once the Trust Deed is Protected, it becomes legally binding on all parties, including you. Failure to maintain the Trust Deed could lead to bankruptcy proceedings being taken against you. As a result, you cannot just cancel a Trust Deed once it has begun.
  • The Protected Trust Deed Is Supervised. You will be legally obliged to inform your Trustee of any changes to your circumstances, even if that leads to you having to increase your contributions. You will also be legally obliged to inform your Trustee of any windfall payments you may receive.
  • Valuable Assets Are At Risk. As part of the application process, you will be required to transfer any valuable assets over to the Trustee. The Trustee will then determine how to use these assets to the best advantage of your creditors which could involve the assets being sold. Whilst personal circumstances will be taken into account, the decision as to what happens to the assets will be at the sole discretion of the Trustee.
  • Damage To Your Credit Rating. By entering into a Protected Trust Deed you will be defaulting on your original agreements and doing so will damage your credit rating. The Trust Deed will be recorded on your credit file too and, as a consequence, your ability to access further credit will be impacted for the next 6 years. However, it should be noted that it will not affect the credit rating of people who live with you.
  • Threat of Bankruptcy For Failing To Comply With The Trustee. By entering into a Protected Trust Deed you voluntarily accept the terms of the arrangement. If you subsequently refuse or fail to comply with the Trustee, they can refuse to discharge you from the Protected Trust Deed. The Trustee could also terminate the Trust Deed completely, thus removing any protection you have from your creditors. The Trustee also has the power to apply to the Sheriff to make you bankrupt, if they believe it is in the best interests of your creditors.
  • Not Suitable For All Directorships. A director of a limited company would not automatically be allowed to continue in their role whilst being subject to a Protected Trust Deed, unless the company’s articles of association allowed it. Instead, they would be required to resign their directorship. However, once resigned, they would be free to make their application as normal.
  • No Credit Facilities. All existing lines of credit will be terminated as part of the Protected Trust Deed process. What’s more, by voluntarily entering into a Protected Trust Deed you agree refrain from applying for new lines of credit for the duration of your Trust Deed. There are exemptions that can be given in certain circumstances, such as Self-Employed people being allowed to retain lines of credit from a supplier, but that must not rise above £500 in value without the Trustee’s consent.
  • Named on the Register of Insolvencies. Because your Protected Trust Deed is a matter of public record, the Accountant in Bankruptcy will register your Protected Trust Deed on the Register of Insolvencies. Creditors have access to this register as, too, do the Credit Reference Agencies who use it to keep their records updated.

Not all these disadvantages will be relevant for every case. Indeed, some will be irrelevant for the majority cases – but, nonetheless, we feel you should be made aware of them all, just in case.

Entering into a Protected Trust Deed is a serious step for anyone to take and it’s important that you are aware of all the facts before you decide which option to take.

To counterbalance the Cons or disadvantages of a Protected Trust Deed there are also the benefits that a Protected Trust Deed will bring to the applicant.

Read this article which gives the full breakdown of all The Pros, or advantages, of a Protected Trust Deed.

If you would like to discuss the cons of a Protected Trust Deed and your personal circumstances with a specialist Protected Trust Deed adviser, simply call our Trust Deed helpline on 0800 088 7503 for a no obligation Trust Deed consultation.