A Protected Trust Deed is a proposal which is offered to your creditors. You agree to make a set affordable monthly payment towards your debt, and offer any equity from any assets in exchange to be debt free in 3 years. To enter a Trust Deed you need a licensed insolvency practitioner to put the proposal to your creditors.
A Trust Deed is a legally binding debt solution for people with serious debts above £10,000 and residing in Scotland. It is a formal agreement between the person in debt and their creditors.
The Protected Trust Deed usually lasts for 3 years, however it can be longer or shorter depending on your circumstances. Once it has been agreed all interest and charges will be frozen. When the Trust deed becomes protected any harassment from the creditors will stop. The main reason people like a Trust Deed is because all interest and charges are guaranteed to be frozen and written off at the end of the solution. However, if you don’t complete your Trust Deed for any reason then you will be liable to maintain the debts and the accrued interest again.
There is a set process to enter a Trust Deed which you should be aware of.
Step 1: Contact a free debt advice charity who will assess if a Trust Deed is the best solution for you. With alternative debt options they could advise on a solution which will have you debt free quicker. Debt charities also know which insolvency companies to trust, so give them a call.
Step 2: If the Trust Deed is appropriate then an insolvency practitioner will be required to put the proposal towards your creditors. Your creditor statements and documentation will be required to process the Trust Deed.
Step 3: Once you sign your Trust Deed and state you wish to proceed, the insolvency company will place an advert in the Edinburgh Gazette; a trade publication for the financial industry. This is done so as your creditors are given the chance to object to your Trust Deed and makes the process legally binding.
Step 4: After the Trust Deed has been in the Edinburgh Gazette for 5 weeks the Trust Deed becomes Protected. This means your creditors are unable to change their mind or demand the money from you as you are now in a Protected Trust Deed.
Step 5: You begin making your set monthly contribution to one company for the length of the Protected Trust Deed. At the end of the solution you will be debt free, usually having only repaid a percentage of your unsecured debt.
There are reasons why you may wish to enter a Protected Trust Deed, however it’s imperative you get free debt help from a charity before entering any debt solution. The reasons to enter a Trust Deed include:
- The affordable monthly payment will be less than your contractual obligated payment.
- Any correspondence from your creditors can be passed directly to your Trust Deed insolvency practitioner to deal with.
- Any creditor would be unable to take further legal action against you.
- Usually your employers don’t have to know about your Trust Deed e.g. they are not contacted directly.
- You can retain your property, however any equity would have to be released via remortgage or a third party.
- Your debt is written off at the end of a Trust Deed and any interest and charges will be cleared too.
- It’s cheaper to enter a Trust Deed than a sequestration so more of your money will go back to your creditors.
- If you can’t maintain a Protected Trust Deed at an affordable contribution then it will fail. If your Protected Trust Deed fails then you will most likely be made bankrupt.
- Your credit file will have a default added and your credit rating will be affected for six years from entering your Protected Trust Deed
- If you own a house then the equity will be required for your creditors. Your home may be at risk if you are unable to remortgage or obtain a third party buy out. Typically an insolvency practitioner will help you keep your house and if your share of any equity is less than £5,000 they are unlikely to be interested in the equity.
- You should check your employment contract to ensure you are not permitted from entering a Protected Trust Deed. It’s unlikely these days but in the past contracts of employment would not allow somebody to enter an insolvency solution.
Protected Trust Deeds have some hot points you should be aware of:
- Insolvency practitioners are accountants who trained to specialise in insolvency. They are essential for entering a Protected Trust Deed. The fees for an insolvency practitioner are taken out of your pot of money gathered over the 3 years.
- The fees for an insolvency practitioner can be £5000 -£7,000.
- In a Protected Trust Deed you must repay at least 10% of the money you borrowed, after fees.
- There are some creditors (Barclaycard, Co-op bank for instance) who have additional criteria for a Protected Trust Deed to be accepted. Qualified Insolvency practitioner are able to identify when they expect that the Trust Deed will not gain protection and can explain to you why.
If your unsecured debt is £20,000. You don’t own a house or a car but you have £300 which you can pay towards your debt each month, then you could be debt free in three years.
In the pot of money would be £10,800 over three years. The insolvency practitioner would take £5,600 for managing your solution. The creditors would agree to this fee before the Protected Trust Deed was approved. The remaining money of £5,200 would be split on a pro-rata basis among your creditors. The creditor owed the most would get the most back.
In this instance you would be debt free having paid back 17.3% of the money you borrowed.
If you think a Trust Deed can help you speak to a Trust Deed charity today, like Debt Support Trust on 0800 085 0226.