What is a Trust Deed

What is a Trust Deed

A Trust Deed is a legally binding, formal agreement which forms part of the Bankruptcy Scotland Act 1985, amended 01 April 2008, and it serves as an alternative to bankruptcy for people living in Scotland, and should not be confused with a Debt Management Plan.

A Trust Deed offers people who live in Scotland, who are experiencing overwhelming personal debt problems, the opportunity to make a voluntary offer to their creditors in the hope of preventing bankruptcy action being taken against them.

The Trust Deed must be proposed through an Insolvency Practitioner, who then acts as the Trustee for the full duration of the Trust Deed, which is normally 3 years, and once the Trust Deed has been signed, both the Applicant and the Trustee are legally bound to the terms held within it.

The Trust Deed proposal highlights exactly what voluntary actions the applicant is going to take as his part of the agreement and, when relevant, it will also include a list of which assets he proposes to transfer to the Trustee. It will also include a financial analysis of the applicant’s circumstances, detailing whether he will be able to make monthly contributions as part of the agreement.

Click here for a clearer understanding of what will happen to your assets.

All Trust Deeds are based around these basic fundamental principles, and at this stage of the process, all of the Trust Deed applications fall into the category of being known as Unprotected Trust Deeds.

An Unprotected Trust Deed is a Trust Deed that only manages to legally bind those creditors who actually agree to be bound by its terms.

There are no qualifying criteria, such as qualifying debt levels or size of monthly repayments that must be met in order to become eligible for an Unprotected Trust Deed, but it is necessary to be either in employment or have a income so that the Trustee’s costs can be recovered.

As the name suggests, an Unprotected Trust Deed does not offer any protection against a creditor taking legal action against the applicant, and only offers legal protection from the creditors who agreed to be bound by the Trust Deed at the outset.

Any creditor who rejected the Trust Deed is not legally bound by its terms and therefore can take legal action against you if he so wishes.

All Trust Deeds start out as an Unprotected Trust Deed, however, most Trust Deed applicants will apply to have their Trust Deed Protected and thus become a Protected Trust Deed

What is a Protected Trust Deed

A Protected Trust Deed is a specific type of Trust Deed.

A Protected Trust Deed is a Trust Deed which meets certain predetermined qualifying criteria, some of which are laid down in law, for example : For a Trust Deed to become ‘Protected‘ the applicant must transfer all rights of ownership of all his assets to the Trustee. See note below

Protection for the Trust Deed is achieved when sufficient creditors agree to be bound by the terms of the Trust Deed that has been proposed.

Once ‘Protection’ is in place, the Trust Deed becomes legally binding on all creditors and stops creditors from taking any legal action for the recovery of the debts.

A Protected Trust deed also legally obliges the creditors to freeze interest and stop placing other charges on to the debts, even if they voted to reject the initial agreement.

During the Protected Trust Deed the creditors will only be able to correspond with the Trustee, and the Trustee will ensure all the terms and conditions of the Trust Deed agreement are adhered to by all parties, including the creditors.

At the successfully completion of the Protected Trust Deed, the applicant is considered to be legally debt free even though he may have only repaid a small proportion of his original debt, with the creditors legally obliged to write-off any outstanding balances .

Please note:

As part of the Protected Trust Deed, any assets owned by the Trust Deed applicant must be transferred to the Trustee to be sold for the benefit of the creditors. It is therefore extremely important that anyone contemplating entering into a Protected Trust Deed should consider the implication this may have on their home.

If you own your home and there is equity held within it, whilst every effort will be made to avoid you having to do so – you may be required to sell your home to free up the equity for your creditors. Please read our guide

How will a Protected Trust Deed affect the Equity in my Home

If you would like to discuss entering into a Protected Trust Deed with one of our specialist Trust Deed advisers then please call 0800 088 7503