If you have debt and you’re based in Scotland, a Protected Trust Deed (PTD) could be a good option for you. A PTD is a legally binding agreement between you and your creditors where you pay a set amount each month towards your eligible debt. This payment is based on what you can afford and lasts for up to 4 years. After this time has passed, any remaining debt included in the PTD is written off. 

In this guide, we go through some Protected Trust Deed advantages and disadvantages to help you make an informed decision about whether it’s the right choice for you. 

What Are the Benefits of a Protected Trust Deed?

There are many advantages to having a Protected Trust Deed including:

• Affordable monthly payments

Part of the process of a PTD involves calculating how much you can afford to pay towards your debt each month, based on your disposable income (i.e. how much you have left each month after necessary expenses). This means that rather than having to pay multiple creditors unaffordable payments, your debt is combined into one simple payment.

• Debt write-off

Having a PTD gives you the opportunity to write off some of your debt. When your PTD ends, any remaining debt that is included in the PTD is written off so you won’t have to pay it back in full. 

• Legal protection from creditors

If your trust deed is protected, this means your creditors legally can’t contact you or take court action against you. Your trustee will deal with them directly, meaning you shouldn’t receive any threatening letters from creditors. 

• All interest and charges are frozen

With added interest and other charges, debt can build very quickly. However, when your debt is part of a PTD, any interest or charges are frozen so your debt level shouldn’t increase any further.

Understanding the Disadvantages

As well as the benefits, there are a number of Protected Trust Deed disadvantages to consider, including:

• Impact on your credit score

Your PTD will remain on your credit file for six years from the date it begins. This can make it difficult to obtain credit, such as a mortgage, during this time as it may indicate that you’re not a reliable borrower.

• Potential loss of assets

Any valuable assets, such as property or a vehicle, may be sold by your trustee to pay off some of your debts. You can typically keep one vehicle as long as it’s worth £3,000 or less. Otherwise, you may be asked to trade it in for a cheaper model. 

• Legally binding agreement

While a legally binding agreement protects you from creditors, you are also legally bound by its terms. This means that if you miss payments, your PTD could fail and you may be at risk of court action from your creditors.

• Recorded on a public register

PTDs are required by law to be recorded on the Register of Insolvencies (RoI), which is open to the public. While it’s unlikely that your friends or family will search this database, banks and credit references agencies may check it. 

Is a Protected Trust Deed Right for You?

Whether a PTD is the right option for you depends on your individual circumstances. However, you will also need to make sure you fit the eligibility criteria. For example, you must: 

• Be a resident of Scotland
• Have debts of £5,000 or more
• Have a stable enough income to be able to afford monthly payments. 

A financial advisor can not only determine whether you would be eligible for a PTD but also explore all the options available to you, taking your specific financial circumstances into account. For free debt advice, contact MoneyHelper.

Comparing Protected Trust Deeds with Other Debt Solutions

If you’re based in Scotland, there are a number of other debt solutions that may be worth considering as well. These include: 

• Debt Arrangement Scheme (DAS)

Similar to a PTD, a DAS allows you to make one monthly payment towards your debt, freezes interest and charges, and protects you from creditors. However, unlike a PTD, it isn’t for a set amount of time and doesn’t write off any debt. Instead, you make monthly payments into a debt payment programme (DPP) until your debt is paid off in full. 

• Sequestration

Sequestration is the Scottish equivalent to bankruptcy. There are no monthly payments like a PTD – instead, your trustee sells any assets to pay off eligible debt and after 12 months, any debt included in the sequestration is written off. Sequestration is typically a last resort as it does severely impact your credit score and potentially your job. 

• Minimal Asset Process (MAP)

MAP is another form of bankruptcy, lasting six months rather than 12. Unlike PTD and sequestration, it is only available to those with minimal assets and income. Once six months have passed, any remaining debts included are written off.