Protected Trust Deed

May 2011

A Protected Trust Deed is a formal and legally binding debt solution available to residents of Scotland. It is an agreement between an individual who is unable to pay his/her creditors in full and an Insolvency Practitioner (the Trustee).

The individual entering into a Trust Deed will have their income and expenditure assessed at a face-to-face meeting. The amount left over after essential expenditure has been taken into account will be contributed to the Trust Deed for a fixed period (usually three years). Essential expenditure would include mortgage/rent, housekeeping, reasonable travel costs, clothing etc. The dual purpose of the Trust Deed is to both regulate the individual's finances in a reasonable way and to achieve the best possible outcome for the creditors concerned.

Protected Trust Deed Criteria

The following criteria are generally applicable to start a Protected Trust Deed:

• You must be insolvent
• You must live in Scotland
• You have unsecured debts of more than £8,000
• You have regular income and disposable income of £200 or more per month

Whilst a Trust Deed is generally for 3 years it is possible for us to extend or reduce the term in order to fit your circumstances.

In addition any assets held by the individual might also be used to contribute towards the debt. This might include investments, expensive vehicles and sometimes the equity held in the individual's home if they are a homeowner. Assets would not normally include household goods such as TV's.

Recent changes implemented through Part 2 of the Home Owner and Debtor Protection (Scotland) Act in November 2010 affect how your home is treated in a Protected Trust Deed. If you own your home, you may have the option of asking your secured creditors (mortgage lender) for their permission to exclude your home from the trust deed. If your secured creditors agree, the rest of your creditors will be informed of this when they are asked to agree to the protection of your Trust Deed. If your creditors do not object to your trust deed becoming protected, you will keep control of the equity in your home. If they do object then home equity would normally be released by way of a re-mortgage.

Once the Trust Deed has been granted our Insolvency Practitioner (IP) will advertise the case in the Edinburgh Gazette (a publication generally read by solicitors, accountants and bank staff rather than the general public). Our IP will then write to the individual's creditors explaining the process and the offer of repayment. Provided that no more than one third of your creditors (by value of debt), or a majority in number of the creditors, object to the Trust Deed it will become Protected. This means that no creditor can take court action against you for the recovery of any debt that dates from before the Trust Deed was signed.

In return for the contribution of an affordable monthly amount and/or the proceeds from available assets you will benefit in several ways. During the period of the Trust Deed interest is frozen. Our IP will deal with the creditors involved. At the end of the Trust Deed period, provided that you have met your commitments, any remaining debts are legally written off.

The fees for the services provided by the IP are met from the funds contributed to the Trust Deed. They will be deducted from the fund of money that has built up prior to the creditors being paid the balance.

Advantages

• Your Trustee deals with your creditors on your behalf
• Unlike sequestration (bankruptcy) a Trust Deed is not advertised in the local newspapers
• You make just one payment per month from your disposable (surplus) income
• When you Trust Deed becomes protected your creditors cannot take further action against you, arrest your earnings or continue to charge interest
• It is possible for individuals to hold certain public offices, remain as directors and for companies to continue to trade
• Trust Deeds normally last three (3) years and at the end of that term the remaining debt is effectively written off
• Trust Deeds are usually more flexible and cost less to administer than sequestration

Disadvantages

• Existing arrestments or diligences will still be effective
• You cannot be a director of a limited company
• It will affect your credit rating
• If you fail to keep up repayments then bankruptcy proceedings will probably be commenced against you
• Any material equity in your property will need to be released for the benefit of your creditors

Alternatives

• Debt Management Plan
• Debt Arrangement Scheme (DAS)
• Bankruptcy

Conclusion

Having a Trust Deed gives you the opportunity to avoid bankruptcy whilst repaying your creditors to the best of your ability over a realistic timescale. They give certainty to a previously uncertain future, and assist with financial rehabilitation leading to an eventual repaired credit rating. You may still find it difficult to obtain credit or a mortgage after completion.

All debt solutions will be discussed at your meeting with your EuroDebt Debt Advisor or Insolvency Practitioner, and your personal preferences will be a priority, subject to eligibility.

To arrange a no obligation meeting with a EuroDebt Regional Advisor call 0800 2 98 97 98 or complete the Contact Us form and add "Trust Deed" in the comments field.

It is important that you read the Debt Advice and Information Pack (pdf), produced by the Accountant in Bankruptcy (AIB), and there are several important points that need to be considered before signing a Trust Deed, which is a very serious matter:

• An ordinary trust deed is not binding on your creditors unless they agree to its terms and it becomes Protected. Your Trust Deed will become protected if a sufficient proportion of creditors agree to it. When you sign a Trust Deed, your Trustee will write to all your creditors asking them to agree to its terms. They must respond within 5 weeks. If more than half of your creditors in number or if creditors who, together, are owed more than 2 thirds of your total debt, write to your Trustee to say they do not agree to your trust deed being protected, your Trust Deed will NOT become protected.

• A Protected Trust Deed (PTD) will be recorded in the Register of Insolvencies, a public register administered by the Accountant in Bankruptcy, as a 'Protected Trust Deed' and will be published by the Trustee in the Edinburgh Gazette as part of the process of the trust deed becoming 'protected'. This binds your creditors and prevents them from making you bankrupt so long as you stick to the terms of the PTD.

• Recent changes implemented through Part 2 of the Home Owner and Debtor Protection (Scotland) Act in November 2010 affect how your home is treated in a PTD. If you own your home, you may have the option of asking your secured creditors (mortgage lender) for their permission to exclude your home from the trust deed. If your secured creditors agree, the rest of your creditors will be informed of this when they are asked to agree to the protection of your Trust Deed. If your creditors do not object to your trust deed becoming protected, you will keep control of the equity in your home. The rest of your assets pass to your Trustee as normal.

• Whilst on a PTD and for 3 years after completing it your credit rating will be affected - a PTD may last 3 years but the effect on your credit rating will last 6 years, though your record will show the debts as cleared from the point that you are discharged (typically 3 years). During the term of the Trust Deed, you will not be able to obtain credit over £250 without telling the creditor about the PTD. Homeowners are likely to be required to release some of the equity in their property, though if they have a mortgage or secured loan against the property then the family home should not be at risk of being sold.

• If your PTD fails, you may be sequestrated (sequestration is the Scottish equivalent of bankruptcy) and you remain liable for the balance of your debt and any Insolvency Practitioner fees and costs already incurred. This may also stop you from being able to deal with your debts through a debt payment programme (DPP) under the Debt Arrangement Scheme.

• Whilst we ask your creditors for 30 days breathing space to set-up your PTD Proposal after we are appointed as your debt manager, your accounts may go into further arrears until the Insolvency Practitioner starts disbursing payments to your unsecured creditors.

• Your trustee will be paid before any money is available to repay your creditors. The fees will normally range between £2,500 to £5,000 (plus VAT) and will be taken from the contributions you make during the time of the PTD.

• Remember, you are not obliged to enter a debt solution with EuroDebt and you are able to cancel at any point whilst your PTD Proposal is being prepared. We offer a seven day cooling off period from the point of signing your PTD Support Agreement.

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