A Protected Trust Deed is a formal arrangement based on a proposal by a debtor to his creditors to clear his debt.
Protected Trust Deeds are applicable to individuals living in Scotland, and are the Scottish equivalent to an Individual Voluntary Arrangement (IVA). They are regulated by The Bankruptcy (Scotland) Act 1985.
Protected Trust Deeds provide people who cannot pay their creditors with an alternative to sequestration - the Scottish equivalent of bankruptcy.
How a Protected Trust deed Works
A Protected Trust Deed is only relevant to debtors who do not have enough disposable income to meet their debt repayments.
All the debts at date of signing the trust deed are frozen and a Trustee is appointed to supervise a debtors affairs.
The trustee writes to all the debtors creditors and makes a proposal to the creditors.
The proposal typically takes the following form :
1. The debtor agrees to surrender his assets to the trustee who realizes all his assets
2. The debtor agrees to pay one affordable monthly repayment to his Trustee usually over 36 months. This repayment figure is based on what the debtor can realistically afford to pay. As such it takes into account the debtor's income, living expenses, assets and liabilities.
If less than 1/3 in value of creditors and/or less than half in number of the creditors object within 5 weeks of the proposal being issued then the trust deed will become protected - that is legally binding upon all the creditors.
At the end of the period, the Trustee will distribute the proceeds to the creditors and any remaining debt is written off completely.
THIS PROCESS CAN RESULT IN UP TO 90% OF THE DEBTS BEING WRITTEN OFF. A PROTECTED TRUST DEED IS A LEGALLY BINDING AGREEMENT UPON ALL THE CREDITORS.
Only if you have insufficient income to make a contribution, but have sufficient value in your assets then your debts may be able to be written off in only 6 months. In this case the process would be as follows:
All the debts at date of signing the trust deed are frozen and a Trustee is appointed to supervise a debtors affairs.
The trustee writes to all the debtors creditors and makes a proposal to the creditors, which typically takes the following form :
1. The debtor agrees to surrenders his assets to the trustee who realizes all his assets
2. If the debtor has no assets but a 3rd party is willing to make a one off payment to the debtor's creditors on their behalf.
If less than 1/3 in value of creditors and/or less than half in number of the creditors object within 5 weeks of the proposal being issued then the trust deed will become protected - that is legally binding upon all the creditors.
At the end of the period, the Trustee will distribute the proceeds to the creditors and an remaining debt is written off completely.
For creditors to accept a 6 month trust deed typically the amount raised from sale of assets or a one off 3rd party payment to creditors should be in excess of the typical payment to creditors under a 3 year trust deed.
THIS PROCESS CAN RESULT IN A SIGNIFICANT AMOUNT OF THE DEBTS BEING WRITTEN OFF. A PROTECTED TRUST DEED IS A LEGALLY BINDING AGREEMENT UPON ALL THE CREDITORS
How to Setup Scottish Trust Deeds
In order to set up a Scottish Trust Deed you need a licensed Insolvency Practitioner to draft the initial proposal to your creditors.
The Insolvency Practitioner, ("IP") drafts the proposal in a way that is fair to both you and your creditors. This is important because if the proposal appears unreasonable to your creditors, they are likely to reject it.
Scottish Trust Deeds Criteria
If you decide to set up a Scottish Trust Deed you have to agree to the following:
- To pay the agreed monthly amount on time.
- Not to take any more credit during the life of your Scottish Trust Deed.
- Co-operate with the Trustee who is supervising your Scottish Trust Deed.
- Advise the Trustee if your financial circumstances alter.
Advantages of Scottish Trust Deeds
The main advantages of Scottish Trust Deeds are as follows:
- Scottish Trust Deeds put the debtor in control of his financial problems.
- If you sign a Scottish Trust Deed you can still hold public office.
- Unlike sequestration, the details of Scottish Trust Deeds are not published in local newspapers
- Your creditors are not allowed to add any more interest to your debt or take any further action against you.
- On protection all unsecured creditors are legally bound by the trust deed and all interest and charges is frozen
- You only pay what you can afford to pay
- On completion all your unsecured debts are effectively written off .
Disadvantages of Scottish Trust Deed ?
The main disadvantages are as follows:
- You are required to stick to a budget for the length of the Trust Deed (usually 3 years)
- You must declare all assets and liabilities and any assets of value may need to be sold for the benefit of the creditors .
- Any material equity in your property will need to be realised for the benefit of your creditors
- Any windfalls, inheritance or bonuses must be declared to your trustee and may need to be surrendered to the trustee for the benefit of the creditors
- You may find it more difficult to obtain credit in the future
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