Protected Trust Deed FAQs
A Protected Trust Deed is a formal debt solution available to people living in Scotland that want to avoid bankruptcy, or Sequestration as it is sometimes called.
Based on a 3 year fixed repayment plan, with repayments set to what is deemed affordable, the Protected Trust Deed has the potential to offer substantial assistance to those looking for financial help.
But finding clear and easy to digest information on the Protected Trust Deed solution can be very difficult.
So, to help you, we've brought together the most frequently asked questions relating to Protected Trust Deeds 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 in depth 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)?
- How does a Protected Trust Deed work?
- How long does it take to get a PTD?
- Who can apply for a Protected Trust Deed?
- How much will I pay each month?
- Who pays the costs for a Protected Trust Deed?
- How long does a Protected Trust Deed last?
- Does a PTD guarantee to freeze interest?
- Will a PTD stop late payment charges?
- Will a PTD stop legal action against me?
- Which is best: A Protected Trust Deed or DMP?
- Will a Protected Trust Deed write-off any debt?
- Will a Protected Trust Deed protect my property?
- Can creditors reject my Protected Trust Deed?
- Can I cancel my Protected Trust Deed?
- What is the legal stance of a PTD?
- What if I can't pay my Trust Deed payment?
- Will a Protected Trust Deed affect my credit rating?
- Will I need to open a new bank account?
- Which is best: Protected Trust Deed or Bankruptcy?
What is a Protected Trust Deed (PTD)?
Introduced under the Bankruptcy Scotland Act 1985, amended in April 2008, 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 Protected Trust Deed 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 at the end of the Protected Trust Deed is legally 'written-off' by the creditors, leaving the applicant debt free. Read more.
Back to FAQsHow does a Protected Trust Deed work?
A Protected Trust Deed works by re-establishing the balance in a household budget. It does this by removing the legal requirement to maintain unaffordable debt repayments by replacing them with a single payment based on affordability.
The size of the new payment is calculated during a financial assessment undertaken during the application stage.
Once the new payment is established, all payments are made to the Trust Deed's administrator, known as the Trustee. The Trustee distributes the payments to creditors on a pro-rata basis. The more a creditor is owed as a percentage of the overall debt, the larger their payment will be.
At the end of the fixed term, the Trust Deed 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.
Back to FAQsHow long does it take to get a PTD?
The application process for a Protected Trust Deed normally takes 6 weeks.
It generally takes one week to complete the paperwork and get the Trust Deed signed, then an further 5 weeks legal notice must pass, during which time creditors have the chance to reject the Trust Deed terms.
If the required level of creditors fail to reject the Trust Deed within 5 weeks, the Trust Deed is said to become protected.
Back to FAQsWho can apply for a Protected Trust Deed?
Any individual who has been living in Scotland for the previous 6 months 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 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 isn't a minimum debt level requirement for a PTD, but debt levels below £10,0000 tend to be more suited to other debt solutions. You should also have more than 2 different creditors.
Back to FAQsHow much will I pay each month?
Under the Protected Trust Deed legislation, you will be required to repay a minimum amount of money back to your creditors through a Trust Deed. The minimum 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 will be based solely on affordability. This means, of course, the more you can afford to repay, the more you will be expected to repay.
In most circumstances, if you can't afford to repay the minimum return required for your debt level within the term of your Trust Deed it will be extended to enable you to reach the required minimum.
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, if you can, you will be expected to increase the amount you repay. If you can't, your payments will stay the same.
Please Note: It is for the reason above that we strongly advise you to seek an independent professional opinion, prior to approaching an Insolvency Practitioner. We have substantial experience in establishing the correct level of affordability for each individual case, which could, potentially, save you money.
Call 0800 088 7502 to discuss your payments with an adviser now.
Back to FAQsWho pays the costs for a Protected Trust Deed?
All Protected Trust Deeds have fees or costs attached to them, and no Protected Trust Deed 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 Trust Deed's fund before distributions to creditors. The fund consists of the monthly contributions paid by the applicant.
This means the fees for the Trust Deed are paid by the creditors, by using the money that was being paid back through the Trust Deed payments. They end up receiving less than the would otherwise have expected because the fees have been drawn.
Consequently, the creditors pay the Trust Deed fees whenever a Trust Deed fails to fully repay the original debt within the agreed repayment term.
However, if you have the means to bring the Trust Deed to an early close through a financial windfall, you will be expected to cover the full debt and the Trustee's fees, before the Trust Deed will be considered satisfied.
Back to FAQsHow long does a Protected Trust Deed last?
There is no set time limit for the duration of a Protected Trust Deed, but the vast majority will be scheduled for a period of 4 years, i.e. 36 monthly payments.
It is possible to have a full and final settlement Trust Deed where, just like the lump sum IVA, the Trust Deed consists of just one payment, but this is much less common.
It can be possible to extend the duration of a Trust Deed if, by doing so, it enables you to meet the minimum repayment dividend as set out in the legislation.
Back to FAQsDoes a PTD guarantee to freeze interest?
A major benefit of the Protected Trust Deed 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 Protected Trust Deed is in force.
Other unsecured debts such as loans would normally 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.
Back to FAQsWill a PTD stop late payment charges?
As a result of the protection given by a Trust Deed after it has been accepted, creditors must refrain from adding late payment charges and fines.
They 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, that's as big as the debt can get.
Back to FAQsWill a PTD stop legal action against me?
As a result of the protection given by a trust deed after it has been accepted, creditors forfeit the right to take legal action for the recovery of all debts included in a Protected Trust Deed.
This is still true if the creditor originally rejected the Trust Deed by writing to the Trustee. Unless the necessary proportion of creditors rejected the PTD within 5 weeks of it being advertised, it is considered accepted and, as such, legally obliges all creditors to comply with it.
Back to FAQsWhich 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 Protected Trust Deed 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 Protected Trust Deed would make a good alternative.
And, as is mostly the case, if it isn't an obvious choice, you should call an adviser on 0800 088 7502 for a professional opinion. Read more.
Back to FAQsWill a Protected Trust Deed write-off any debt?
Under the terms of the Protected Trust Deed, your creditors will be legally obliged to accept the repayments they receive through the Trust Deed as full settlement of your debt.
The debt write-off only takes place after the final payment into the Protected Trust Deed 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 lose the debt write-off and your debts will return to their previous balances, minus whatever they'd received through your PTD payments.
Back to FAQsWill a Protected Trust Deed protect my property?
A Protected Trust Deed will 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, before you decide on which option to take.
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 trust deed.
This option becomes more difficult if the equity is of a large value. Ultimately, the Trustee has the power to sell a property to release the equity within it if it is in the best interests of your creditors and no alternative can be found But all efforts will be made to find a good alternative.
You should take professional advice by calling our help line on 0800 088 7502 if you have any concerns on this issue.
Back to FAQsCan creditors reject my Protected Trust Deed?
Yes, your creditors will have an opportunity to reject your Trust Deed if they feel it is in their best interests to do so.
The Trust Deed process gives them 5 weeks within which they must respond to the Trustee. If they do not respond, then they are considered to have accepted the Trust Deed and it will become protected.
However, in the vast majority of cases creditors do not reject Trust Deeds without good reason.
For a Trust Deed to be rejected, 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.
Back to FAQsCan I cancel my Protected Trust Deed?
Because your Protected Trust Deed is a legally binding agreement, it is not possible to simply cancel it. Rather than cancelling the Trust Deed it would be necessary to have it officially failed or terminated instead.
Doing so would break the protection from creditors being offered by the Trust Deed and revert the liability to the original debts back to the applicant.
Back to FAQsWhat is the legal stance of a PTD?
The Protected Trust Deed forms part of the Bankruptcy Scotland Act 1985, amended in April 2008 and is, therefore, a legally binding agreement between all parties.
Once agreed it legally obliges all parties to abide by the agreement as described in the deed.
To ensure the terms of the deed are upheld, the law stipulates that only a licensed Insolvency Practitioner is allowed to act as a Trustee and administer a Protected Trust Deed.
Back to FAQsWhat if I can't pay my Trust Deed payment?
The Trustee has the power to adjust or amend payments into a Trust Deed 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 Deed. Read more.
Back to FAQsWill 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 Trust Deed you will be expected to refrain from seeking credit, so there will only be a further 4 years to endure before your credit rating returns to normal. Read more.
Back to FAQsWill 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 Trust Deed 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.
Back to FAQsWhich is best: Protected Trust Deed 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 in most circumstances the Trust Deed will protect them.
Both solutions have the same repayment term, and both are recorder on the register of insolvencies but, for many, it will be a matter of personal preference determining which solution they opt for.
Back to FAQsGet A Professional Opinion
In our experience it always advisable to seek a professional opinion from a professional debt adviser.
The team behind IVA.info have been assisting people with serious debt problems for a decade now and we're able to help you.
So why not give us a call on 0800 088 7502 or complete this form and we'll call you at your preferred time.
