Protected Trust Deed FAQs

A Protected Trust Deed (PTD) is a formal debt solution available to people living in Scotland that want to avoid bankruptcy, or Sequestration as it is sometimes called.

Normally based on a 4 year fixed term, with repayments based on affordability, the PTD has the potential to offer substantial assistance to those seeking financial help.

But finding clear and easy to digest information on the PTD solution can be very difficult.

So, to help you, we've brought together the most frequently asked questions relating to PTDs as we feel this as good a place to start as any.

Protected Trust Deeds Frequently Asked Questions

Where we felt it was necessary to give a more detailed answer, we will have written a dedicated article. To read any of those articles simply follow the link where you see the highlighted phrase 'Read more'.

What is a Protected Trust Deed (PTD)?

Introduced under the Bankruptcy Scotland Act 1985, amended in April 2008, and most recently included within the Bankruptcy (Scotland) Act 2016, a Protected Trust Deed, or PTD, is a formal debt solution for people living in Scotland, that acts as an alternative to bankruptcy, or Sequestration as it is sometimes referred to in Scotland.

A PTD can only be administered by a licenced Insolvency practitioner (IP) who, once the PTD has been agreed, acts as the Trustee of the arrangement.

A PTD is a legally bind agreement, based on affordable monthly repayments over a fixed term of, normally, 4 years. It guarantees to freeze interest and stops bank charges.

Any outstanding balances still left unpaid on the successful conclusion of the PTD are legally 'written-off', leaving the applicant debt free. Read more.

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How does a PTD work?

A PTD works by removing the debtor's obligation to maintain contractual debt repayments and, instead, replaces them with a single payment based on affordability.

Repayments are paid to the Trustee who, then, distributes payments to creditors on a pro-rata basis. The more a creditor is owed as a percentage of the overall debt, the larger their share of the repayments will be.

At the end of the fixed term, the PTD completes and the Trustee notifies the creditors. They are then legally obliged to write-off any debt left unpaid at this point, leaving the applicant debt free.

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How long does it take to get a PTD?

The application process for a PTD normally takes about 6 weeks.

It generally takes one week to complete the paperwork and get the Trust Deed signed, then the Deed must be advertised on the Register of Insolvencies for a period of 5 weeks.

This is to give creditors a chance to reject the Trust Deed if they are not prepared to be bound by its terms.

If the required level of creditors fail to reject the Trust Deed within this 5 week window, the Trust Deed is said to have achieved 'Protected' status.

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Who can apply for a PTD?

Any individual living in Scotland can apply for a Protected Trust Deed, they do not have to be a Scottish national.

They must also be insolvent, i.e. not own assets that would, if sold, clear the debt in full.

They should also be unable to afford their contractual debt repayments. Whilst it isn't necessary to have missed any debt repayments at the time of application, the prospects of doing so should be imminent.

There is a minimum debt level of £5,0000. You should also have more than 2 different creditors.

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How much will I pay each month?

You will be required to repay a minimum percentage of money back to your creditors through the arrangement. The actual amount will vary, depending on the level of debt you have, but, essentially, the more you owe, the more you'll be expected to repay.

That said, the size of your payments should be based on affordability. This means, of course, the more you can afford to repay, the more you will be expected to repay.

In some circumstances, if you can't afford to repay the minimum percentage required for your debt level within the usual fixed term, the PTD can be extended to enable the minimum to be reached.

Payments into your PTD will be assessed as part of your initial consultation and set for the 1st year of your agreement. Each year your circumstances will be reassessed to see if you are able to pay more and, if you can, you will be expected to increase the amount you repay. If you can't, your payments will stay the same.

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Who pays the costs for a PTD?

All PTDs have fees or costs attached to them, and no PTD is ever administered for free.

The fees are charged by the Trustee for the work they do in setting up and administering the PTD for its duration. The fees are deducted from the PTD's funds before distributions to creditors. The fund consists of the monthly contributions paid by the applicant.

This means that in most cases the fees for the PTD are paid by the creditors, by using the money that was being paid into the arrangement. Creditors simply end up receiving less than they would otherwise have expected, because the fees have been drawn.

However, if a debtor has the means to bring their PTD to an early close, perhaps through a financial windfall, they will be expected to repay their original debt in full, as well as the Trustee's fees, before the Trust Deed will be considered satisfied.

Likewise, if a PTD fails to complete successfully, not all the money paid into the arrangement will have been deducted from the original debts, as some will have been used to cover the Trustee's fees.

In this scenario, the debtor would have paid for the PTDs fees.

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How long does a PTD last?

There is no set time limit for the duration of a PTD, but the vast majority will be scheduled for a fixed repayment period of 4 years, i.e. 48 monthly repayments.

It is possible to have a full and final settlement PTD where the arrangement consists of just one payment, but this is much less common.

It can be possible to extend the duration of a PTD if, by doing so, it enables you to meet the minimum repayment dividend as set out in the legislation.

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Does a PTD guarantee to freeze interest?

One significant benefit of a PTD is its ability to force creditors to freeze the interest on your debts.

As a result, all credit card, store card and charge card companies must stop accruing further interest whilst your PTD is in force.

Other unsecured debts, such as loans, might side step the issue of interest being frozen by 'front loading' it instead.

As soon as the Trustee contacts them for proof of the debt, they'll inflate it to the full outstanding balance, rather than the settlement figure they might show on a statement.

Whilst this might seem underhanded, it actually has little impact on the applicant. The main effect is felt by the other creditors as their share of the debt is comparatively reduced, thus reducing their share of the PTD dividend.

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Will a PTD stop late payment charges?

As a result of the protection gained at acceptance, creditors must refrain from adding late payment charges and fines.

They also lose the right to add penalty payments to the debt because it would disadvantage the other creditors. So, once they have proved the debt to the Trustee, the debt is crystallised.

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Will a PTD stop legal action against me?

As a result of the protection gained at acceptance, creditors forfeit the right to take legal action for the recovery of all debts included in the arrangement.

This is still true even if the creditor opted to reject the arrangement. Unless the necessary percentage of creditors rejected the PTD within 5 weeks of it being advertised, it legally obliges all creditors to comply with it.

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Which is best: A Protected Trust Deed or DMP?

The answer to this question will be determined by your personal circumstances.

One of the main benefits provided by a PTD revolves around the fixed repayment term of 4 years, as opposed to that of a DMP which will last until the whole original debt has been repaid.

If you're able to afford payments of sufficient size that would enable you to repay your debt in 4 years or less, then a DMP would probably be your most suitable solution.

But, if your repayments are too low to be able to repay your full debt within 4 years, then a PTD would, generally, make a good alternative.

Read more.

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Will a PTD write-off any debt?

Under the terms of the PTD, your creditors will be legally obliged to accept the repayments they receive through the arrangement as full settlement of your debt.

The debt write-off only takes place after the final payment into the PTD has taken place.

It is very important, therefore, to ensure you manage to reach the full term of your agreement. If you can't, you will possibly lose the debt write-off and your debts will be reinstated at their original balances, minus whatever they'd received through your PTD payments.

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Will a Protected Trust Deed protect my property?

A PTD have an impact on your property if it has equity within its value and great care should be taken to fully understand how this element of a PTD will affect your home.

Your Trustee will be keen to explore the level of equity held in your property as well as ways of accessing it for the benefit of your creditors.

When the equity value is small, then agreement can be easily reached to protect or 'ring-fence' any future equity from inclusion in the arrangement.

This option becomes more difficult if the equity value is high. Ultimately, the Trustee has the power to sell a property if doing so is in the best interests of your creditors, particularly if no alternative can be found. But all efforts are generally made to find a good alternative.

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Can creditors reject my Protected Trust Deed?

Yes, your creditors will have an opportunity to reject your PTD if they feel it is in their best interests to do so.

The application process gives creditors 5 weeks to respond to the Trustee. If they do not respond, then they are considered to have accepted the Trust Deed and it will achieve 'Protected' status.

However, in the vast majority of cases creditors do not reject PTDs without good reason.

For a rejection, there must be 33% of creditors in debt value terms, or more than half of creditors in numerical terms, that reject the proposal within 5 weeks of the Trust Deed being advertised.

Anything other than this is considered an acceptance.

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Can I cancel my Protected Trust Deed?

Because your PTD is a legally binding agreement, it is not possible to simply cancel it. Rather than cancelling the arrangement it would be necessary to have it officially failed or terminated instead.

Doing so would remove the protection from creditors being provided by the arrangement and reinstate the debtor's liability to the original debts.

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What is the legal stance of a PTD?

A PTD is a legally binding agreement.

Once agreed, it legally obliges all parties to abide by its terms and conditions.

To ensure the terms of the deed are upheld, the law stipulates that only a licensed Insolvency Practitioner (IP) is allowed to act as a Trustee and administer a PTD.

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What if I can't pay my Trust Deed payment?

The Trustee has the power to adjust or amend payments into the arrangement as they see fit. They have sole discretion over what actions to take when payment problems occur.

Depending on the nature of the payment problem, a payment reduction or break can be arranged, which is especially helpful if the problems are of a temporary nature. But where the problems relate to a more permanent problem, then the Trustee will look at the options available, including terminating the arrangement. Read more.

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Will a Protected Trust Deed affect my credit rating?

As with all debt solutions, your credit rating will be adversely affected for a period of 6 years.

During the term of the arrangement you will be expected to refrain from seeking credit. So it is likely that there will only be a further 2 years to endure after the end of the arrangement before your credit rating returns to normal. Read more.

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Will I need to open a new bank account?

If you have a debt with your current bank, such as an overdraft, a credit card or a loan, then yes, you will have to change your bank before your PTD is enforced.

This is because your bank has a 'right to set-off' funds in one account against arrears owed by another account of the same account holder.

The good news is that changing banks is not as difficult as it sounds, and can be done relatively smoothly.

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Which is best: PTD or Bankruptcy?

The answer to this question will, again, be determined by your personal circumstances and personal preference.

For people who do not have any assets to protect, or whose income would not be affected adversely, then bankruptcy would probably provide the cheaper option.

Whereas, if you have assets that might be vulnerable in bankruptcy, then it is possible that a PTD might protect them.

Both solutions are recorder on the register of insolvencies so, for many, it will be a matter of personal preference determining which solution they opt for.

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