Protected Trust Deed: A Beginner’s Guide

Protected Trust Deed

Struggling with debt and related financial outrages might devastate your life and bring down your financial confidence. When you are looking for flexible repayment options to cut down your debt repayments to balance your day-to-day situation, a protected trust deed might benefit you. This practice is nothing but a form of insolvency where you can clear off your unsecured debts.

Well, it is quite similar to the Individual Voluntary Arrangement process that is available in Wales, England and Northern Ireland. However, a protected trust deed is valid only in Scotland. In case, you can’t afford hefty interests and expenses on debt repayments, here’s the guide related to protected trust deeds. Let’s continue and check whether a protected trust deed suits your financial needs.

What is a Protected Trust Deed?

In short, it’s a legally binding contract that promises to clear off all your unsecured debts if you keep up with regular affordable repayments. Additionally, this insolvency practice is supported by the government. You just switch to flexible amounts every month for debt pay-off and it generally takes more or less 4 years to write off your debts.

Don’t worry, your priority costs and living expenses are left untouched when you sign for this insolvency practice. However, protected trust deeds are available against unsecured debts such as personal loans, store cards and credit card debts. Most importantly, this practice is available in Scotland only.

Advantages of Protected Trust Deeds

Before you ask help from an Insolvency Practitioner to set up a trust deed, it’s wise to learn what are the benefits of the scheme. Here it goes:

  • The appointed Insolvency Practitioner would arrange the repayment scheme for four years, typically. After that, all your outstanding debt goes written off.
  • Protected Trust Deed saves from increasing interest rates. All your interests go frozen after you have successfully availed a Protected Trust Deed.
  • Your creditors or lenders can’t chase you any more after they have accepted your trust deed. Fortunately, they are not liable to take any court action against you.
  • Trust Deed might make you sell some assets. However, you can keep the vehicle that is required for your work, if it values less than £3000.
  • You need not encounter court proceedings, though Trust Deed is a legal debt solution.

Disadvantages of Protected Trust Deeds

Yes, there are multiple benefits of Protected Trust Deeds in Scotland. But, you can’t ignore the risks associated with the insolvency practice. Go through them for a better understanding:

  • Apart from that affordable monthly repayment amount, you have to pay your Insolvency Practitioner as remuneration for proceeding the trust deed. Calculate the percentage of the debt that has to be paid to the Insolvency Practitioner before proceeding with further steps.
  • A Protected Trust Deed might impact your employment situation. You can eye over your employment contract, or directly discuss the matter with your HR department.
  • In case, you fail to pay, your trust deed might lead to a more severe financial condition and that’s bankruptcy.
  • All your personal and financial details are on a vulnerable edge as your name appears on the Insolvency Register.
  • The chances of getting new credits approved might come to an end. As your credit rating might face restrictions for six years.

How does an Insolvency Practitioner Work with a Protected Trust Deed?

Once your protected trust deed gets approved you have to shift all your possession or assets to the Insolvency Practitioner. Afterwards, the trustee confirms to your creditors that he/she would repay your debt with all your assets. On the other hand, you have to agree to pay off the debt with an affordable amount. This is going to last for forty-eight months.

Furthermore, the trustee sets up a proposal to the lenders and requests them to make your trust deed protected. If the creditors don’t oppose, then it is assigned as protected. Next, you have to make regular payments every month, for four years, in a row. However, the time span can vary according to your owed debt amount and other circumstances. Additionally, you need to work together with your trustee.

Eligibility to Apply for a Protected Trust Deed

Apart from ‘What is a Protected Trust Deed and how it works’ queries, the qualification for this particular scheme matters. If you’re a citizen of Scotland and owe a debt of £5000 or more, then you can apply for a Protected Trust Deed. In case, an already bankrupt individual, he/she has to get discharged from bankruptcy before he/she decides to apply for a trust deed. On the other hand, you should be capable of paying a definite amount every month.

Which Debts does a Protected Trust Deed Cover?

Protected Trust Deeds are designed to clear off your unsecured debts. It covers credit debts, loans from banks, debts from finance companies and store cards. However, it is capable of covering Inland Revenue, private loans, HM Customs and VAT. Keep in mind that Trust Deed can’t help you in the case of secured loans, such as secured debts and mortgages. 

What Happens to Your Home?

If you are the legal owner of your house and apply for a trust deed there are chances that you might have to sell it to pay off your debts. When your home has a significant amount of equity or not at all equity, you can apply for a Protected Trust Deed that won’t incorporate your home. 

Your home won’t be included in the Protected Trust Deed if it’s your only space for living. Otherwise, in case the trustee wants to sell your house, you can request the sheriff court to delay the proceeding for up to three years.

What about your Car?

In case, you own a car that has a value of less than £3000, then your car is not considered as an asset. Additionally, you have to show enough evidence that you need your car for job or study purposes. Then only you can keep it. Or else, your trustee can sell your car to pay off the debts you owe. 

How does a Protected Trust Deed Impact Credit Rating?

Although a Protected Trust Deed is a legal contract between your lenders and you, you bring down modifications to the payment terms. Naturally, it affects your credit rating. Your credit rating will carry on the effect while you are under the Trust Deed. Additionally, the scenarios remain the same for additional two years. Meanwhile, it becomes quite difficult to apply for further credits, however, it’s not impossible.

What are some Alternatives to a Protected Trust Deed?

If you think that only a Protected Trust Deed can save you, then you’re probably misguided. There are other alternatives to a Protected Trust Deed and here it goes:

  • Debt Arrangement Scheme offers you to go debt-free within the least possible time if you can afford to pay your debts in full.
  • Bankruptcy or sequestration is for you if your financial situation becomes unbearable. For bankruptcy, you need to owe £3000 or more.
  • In case, you are gasping among multiple debts, then debt consolidation is the right choice. Pay off your outstanding debts with this re-financing option.

Talk to your Debt Advisor First…

Whatever financial decision or scheme you take, don’t forget to discuss with your debt advisor. Only a qualified and veteran debt advisor can tell you ‘What is a Protected Trust Deed’ and if it’s for you. The expert would avail the best suitable financial scheme that relieves you from your debt stress.