If you’re struggling with debt and you’re based in Scotland, there are a number of different debt solutions available, including Protected Trust Deeds (PTDs). This guide will give a detailed overview of what a PTD is, how it works and what happens at the end of a Protected Trust Deed. Read on to find out more. 

What is a Protected Trust Deed?

A Protected Trust Deed (PTD) is a legally binding agreement between you and your creditors to make monthly payments towards your debt over a period of four years. Once it ends, all debt included in the PTD will be written off. While you have a PTD, your assets will be passed to a trustee who may sell some of them to pay off part of your debt.

The process of getting a Protected Trust Deed involves the following steps:

Step 1: Assessing Your Financial Situation

Before applying for a PTD, it’s a good idea to check whether it’s the right debt solution for you. To be eligible for a PTD, your debts must amount to £5,000 or more. However, there are certain debts that can’t be included in a PTD, meaning you’ll have to pay them in addition to your PTD payments. These include:

• court fines
• student loans
• secured loans
• compensation payments.

A PTD is a debt solution for those with unmanageable unsecured or non-priority debts, such as credit cards, overdrafts, utility arrears and personal loans. It’s therefore worth checking what type of debt you have and whether it would be eligible for a PTD or not.

You will also need to calculate your disposable income – you can do this by subtracting necessary expenses, such as bills, rent and groceries, from your monthly income. To be eligible for a PTD, you will need enough disposable income to make monthly payments towards your debt. However, you can’t have enough disposable income to fully pay off your debt in less than four years. 

If you are unsure whether you qualify for a PTD or need any further support, you can contact our debt experts here at MoneyPlus. Alternatively, you can get free debt advice from MoneyHelper.

Step 2: Preparing and Submitting a Proposal

You can’t prepare or submit a trust deed proposal on your own so you’ll need to contact a licensed Insolvency Practitioner (IP). They’ll be your trustee and arrange the trust deed for you. 

The trust deed proposal will need to include details of your repayment plan, i.e. how much you can afford to pay each month. Your IP will work this out using the Common Financial Tool (CFT) and will ask you for evidence of your income and essential expenses, including copies of:  

• bank statements
• pay slips
• benefits letters
• household bills.

They will also ask for a full list of your creditors and how much you owe each one, as well as details about your assets. Once your IP has this information, they will draw up the proposal, which you’ll need to read carefully and sign before returning to them.

Your IP will then send the proposal to your creditors, asking them to agree to the trust deed. They then have five weeks to respond. 

Step 3: Creditor Approval Process

In order to get a Protected Trust Deed, creditors who hold at least a third of your debt balance must agree to the terms. If they do agree or fail to respond to your proposal within five weeks, your trust deed will be sent to the Accountant in Bankruptcy (AiB). Once they approve it, the trust deed becomes protected. This means that it’s a legally binding arrangement and your creditors aren’t allowed to: 

• contact you directly
• add interest or additional charges to your debt
• take court action against you. 

However, if creditors holding more than two-thirds of your total debt object, the trust deed cannot be protected. Therefore, your creditors can do any of the things listed above and you’ll continue to owe money to them. 

Step 4: Managing Your Trust Deed Over Time

Once your PTD is made, a notice will be added to the Register of Insolvencies (RoI) which is a public record. It will also affect your credit score for six years from the start date. During this time, you may find it hard to get credit as lenders will likely see you as high risk, so may reject you or only offer high interest rates.

Your PTD will last for four years and you’ll make a payment every month towards your debt, which will have been calculated by your IP based on what you can afford. Therefore, if your circumstances change during your PTD, you must inform your IP. This could include:

• an increase or decrease of income or benefits
• emergency expenses
• pregnancy 
• job loss
• divorce or separation from a partner
• death of family member
• changes in physical or mental health.

You will then be asked to fill in an income and expenditure form and give evidence of the circumstance change. If your disposable income decreases as a result, you may be able to reduce your payments. Equally, if your disposable income increases, you may be asked to increase your payments. 

Any windfalls such as inheritance or lottery wins must also be reported to your IP as they may be used to pay creditors. 

What Happens at the End of a Trust Deed?

After you make your last PTD payment, which is typically after four years, your IP will apply to the AiB and ask them to discharge you. If they approve this, your discharge will be recorded in the RoI and stay there for 12 months. Any remaining debt included in the PTD will also be written off.

Remember that your credit rating is impacted for six years from the start date of your PTD so it may be difficult to get credit for two years after your PTD ends.  

FAQs About How Protected Trust Deeds Work

What fees are involved?

When you apply for a PTD, your trustee will take a fee. The exact amount varies depending on which trustee you go for and the complexity of your PTD. However, this fee is typically taken from your monthly payment towards your debt.  

Can I pay off a PTD early?

Yes, it’s possible to pay off your PTD early but you would have to make a lump sum payment of the total debt as well as the trustee’s fees. This is typically only possible if you come into a large amount of money, for example if you sell your home, get a redundancy payment or receive a windfall. 

What will happen to my assets?

When you meet with your IP, you will need to give them details of any assets and their values. If you have any particularly valuable assets, such as a property or vehicle, they may have to be sold to pay off your debts. You are usually allowed to have one vehicle if it’s worth less than £3,000. It may be possible to set up a PTD that doesn’t include your home but this will need to be agreed with your trustee before you sign the trust deed.

Will a PTD affect my job?

Before you sign a PTD, it’s worth checking your contract or speaking to your employer as some roles don’t allow those who have signed a PTD to work for them. The most common are financial institutions and solicitors. You also aren’t allowed to be a company director without permission from your trustee.