What happens if my Trust Deed fails to become Protected

There is always an outside chance that your Trust Deed will fail to become Protected, even if for no other reason that a Trust Deed is a voluntary agreement and therefore, by definition, no one can force your creditors to accept your Trust Deed proposal.

In most circumstances, your creditors expectations are known in advance and our Insolvency team have a great deal of experience in making sure the Trust Deed proposals we put forward do not fall short of these creditors expectations. After all, there would be no point in proposing a Trust Deed that was flawed from the outset.

But from time to time, there will be an unexpected rejection of a Trust Deed proposal, and we think you should be made aware of what can happen if your Trust Deed fails to become ‘Protected’.

If your Trust Deed fails to become Protected then the Trust Deed no longer has the ability to legally bind together the creditors that voted against it.

As a result of a rejection, a Trust Deed loses the power to deal with all the debts as a whole and, as a result, ceases to be a practical option to a serious debt problem.

Click here to read more about a creditor rejecting your proposal.

From this position there are two primary options still available for you to choose between.

These are a Debt Management Plan or Bankruptcy.

Debt Management Plans provide the perfect ‘breathing space’ solution for people who will need some time to deliberate over their choice. They provide the chance to make payments to creditors whilst a new long term strategy is planned. Unfortunately, however, in a Debt Management Plan, there are no guarantees that interest will be frozen on the debts, and as a result the effectiveness of the plan could be severely reduced.

The alternative solution, and one still capable of binding creditors together whilst dealing with all your debts would be Bankruptcy.

If your Trust Deed fails to reach Protected status you can ask your Trustee to begin bankruptcy proceedings on your behalf.

In practical terms, there will be little difference between the Trust Deed and your bankruptcy, with 36 monthly contributions of a similar amount being payable. The main difference being, however, that your Trustee will not have to ask you creditors for the bankruptcy’s acceptance. Instead, he only has to inform them of your decision to proceed with your own bankruptcy, and he will act as your Trustee in bankruptcy instead.

Creditors do realise this of course, which is one of the reasons why they tend not to reject the Trust Deed in the first place. After all, the Trustee has already demonstrated the Trust Deed will have an equal or better return over bankruptcy.