A Scottish protected trust deed is a means in Scots law for you to pay your creditors what you owe them through a trustee. It is basically a means of avoiding bankruptcy by placing all your assets into the hands of a trustee who will realize them when necessaery and pay your creditors according to the value of the assets.
In a regular Trust deed, you agree to tranbsfer your assets to a trustee, who then communicates with your creditors and arranges your payments. These payments can be made from money you agree to pay to the trust and also by selling your assets, though essential household items cannot be sold. It is fundamentally a way to avoid bankruptcy (or sequestration). However, any creditors objecting to the trust deed can take their own steps to recover what you owe them. A Protected Trust Deed differs in that even creditors that object cannot undertake further legal steps to recover what they are owed. They are obligated to adhere to the terms of the protected trust deed.
In order for a trust deed to become 'protected' the following steps are necessary:
1. Your trustee must place a notice in the Edinburgh Gazette, 2. Inform each of your creditors in writing that you are petitioning for a Protected Trust Deed, and 3. Each creditor must be sent a copy of the notice placed in the Edinburgh Gazette.
Each creditor then has five weeks in which to object, commencing on the date of publication of your notice in the Edinburgh Gazette. The trust deed will then become protected if:
a) Fewer than one third of your creditors object, OR b) Fewer than those representing a third of your total debts object.
If either of these groups do object, then you may be able to petition for sequestration yourself, but only if you owe more than £3,000 and you have never been declared bankrupt over the past 5 years.
A protected trust deed should only be used where you have no other means of repaying your debts and do not wish to be declared bankrupt. Credit references agencies will be informed of your insolvency through your notice in the Edinburgh Gazette, and your trustee must be provided with all of your assets (everything you own). You should also pay the trustee as much of your income as you can afford after paying your essential household bills.
Obviously, the more you can afford to pay yourself, the less likely it will be that your house will be sold. You could also think of arranging a loan secured on your home and pay your debts that way. The trustee can sell your property to raise the cash needed to meet the terms of the protected trust deed, and even if your house is co-owned a sale can be forced in court with the trust receiving your part of the proceeds.
It is thefore the last chance saloon, and should be regarded as your last chance to avoid bankruptcy. Your creditors are obligated not to contact you any more, but with the trustee, even if they had objected. The trust normally runs three years after which remaining debts are written off and any remaining funds and property still in the trust are returned to you.
Thease are the main reasons why you should consider a protected trust deed apart from the fact that it will enable you to avoid bankruptcy:
• You no longer have the pressure of continual telephone calls from creditors
• All interest charges and costs are stopped when the protected trust is set up
• It cost less to set up than bankruptcy
• You will normally be able to serve as a company director
• You will normally be able to remain self-employed
• You will normally still be able to hold public office
• All remaining debt after three years will be written off
• Information about the protected trust deed is not published in the press like bankruptcy is
However, you must take no further credit during the period of the trust deed, pay the agreed monthly contribution and cooperate fully with the requirements of the trustee. If your financial situation improves in any way, such as from a legacy or even a lottery win then you must inform the trustee.
The Protected Trust Deed is entirely a Scots law arrangement and is fairly easy to form. You first have to complete a form that will determine whether or not you qualify for this method of arranging debt repayment, and if so you are put in touch with a company that specializes in trust deeds. They will then take over the process for you from the information with which you provide them.