02/12/2019

Carrington Dean welcomes Government call for Trust Deed evidence

02/12/2019

Carrington Dean welcomes Government call for Trust Deed evidence

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The news comes as Scottish Parliament has called for evidence on Scottish Protected Trust Deeds, following concerns raised during recent scrutiny of the Debt Arrangement Scheme (Scotland) Regulations 2019 (DAS).

During the DAS review, witnesses raised concerns that Protected Trust Deeds were being recommended to people when not considered to be the best debt solution for their circumstances.

Now, the Economy, Energy and Fair Work Committee of the Parliament has said it wants to hear from debt experts, creditors and people who have used Protected Trust Deeds.

Importantly, the Committee has also asked for evidence, not just from those that have found Trust Deeds have worked for them, but also those who found they didn’t.

The hope is the Committee will then be able to make recommendations to the Scottish Government and propose how Protected Trust Deeds can be improved for both consumers and creditors.

What is the history of Protected Trust Deeds?

Scottish Trust Deeds are one of the oldest debt remedies in the UK and are unique to Scotland. They allow people who cannot repay their debts within a reasonable period of time to make proposals to their creditors to address their over-indebtedness over a four to five-year period of time.

One of the most famous Scots to ever grant one was Sir Walter Scott in the 1820s.

Author of books such as The Waverley, Rob Roy and the Lady in the Lake, Scott was also a legal Advocate and a Sheriff Court Judge.

Scott was granted the Trust Deed after he was plunged into financial distress in 1825-26, when there was a downturn in the publishing industry, which he had invested heavily in.

Like many of the clients we come across today, despite offers of help from family and friends, Sir Walter Scott decided he wanted to take responsibility for his own debts and instead of going bankrupt, opted for a Trust Deed.

If he had gone bankrupt, he would almost certainly have had to sell his home and other properties.

So, like many, he chose a Trust Deed over bankruptcy and offered to repay his debts through the income he had: that is from the sales of his books and his official salaries as the Principal Clerk of the Court of Session (Scotland’s Supreme Court) and from being Sheriff of Selkirkshire.

Since then Trust Deeds have been modernised, most notably in 1985, when the Bankruptcy (Scotland) Act 1985 was passed.

How do Protected Trust Deeds work today?

Unlike in Scott’s day, Trust Deeds no longer require all of someone’s creditors to agree to them and can now be protected, providing creditors with no more than one-third of someone’s total debts, don’t object to them.

They then get “protected” which mean they are legally binding on all creditors and protect the consumer from wage arrestments, bank arrestments and other forms of legal debt recovery. They also protect the consumer from being made bankrupt, or sequestrated, as it is known in Scotland.

In Scotland, in 2018-19, 7,917 Trust Deeds were protected by the Scottish Government’s insolvency service, the Accountant in Bankruptcy, after the majority of the creditors involved agreed to them.

Why do creditors agree to Trust Deeds getting protected?

It may seem strange, but the vast majority of creditors agree to Trust Deeds being protected, even though it will mean they will not get all their money back.

For most creditors, however, they understand that even with the best intentions in the world, not everyone is able to repay their debts within a reasonable period of time.

So, providing people are willing to agree to allow a licenced insolvency practitioner wind up their affairs, usually over four to five years, they are willing to consider proposals that are put to them.

Creditors also understand that if they just refuse to agree to a Trust Deed, this may force someone to go bankrupt, which often means they will receive less back towards their debts.

What about the family home?

Many creditors are also willing to consider a Trust Deed proposal where it does not involve the sale of the family home.

The reason being is many providers of consumer credit don’t want to see their customers having to sell their family home.

One of the benefits of Trust Deeds is the consumer gets to make proposals, like Sir Walter Scott did, to their creditors as to how they will deal with their assets, and this doesn’t always have to involve selling them.

So instead with Trust Deeds, where someone cannot re-mortgage their home, creditors will accept that the consumer will instead pay an extra one or two years contributions to their debts in exchange for not having to sell their home.

What about cars?

Likewise, as with homes, creditors are often willing to consider reasonable offers in Trust Deed proposals to deal with other assets, like cars.  Often creditors will recognise that in today’s modern society, cars are essential for families and are a necessity for many so they can get to a from work, so they can earn a living and pay off their debt.

They, therefore, are willing to be flexible as to how cars are dealt with, over and above the current protections that exist in law, that mean cars with a value of £3,000 or less are not considered assets, providing a reasonable requirement for the car can be shown.

Carrington Dean welcomes call for evidence

As the largest provider of Trust Deeds in Scotland, we have welcomed the call for evidence by the Economy, Energy and Fair Work Committee of the Scottish Parliament.

Graeme MacLeod, the Head of Operations for Carrington Dean said: Like with all debt solutions, nothing is perfect and there is always room for improvements.  For example, for many people who go bankrupt, the application fees present a barrier for people getting access to debt relief.

“With the Debt Arrangement Scheme often it will take too long for people to repay their debts, and with as many as 40% of Programmes in the Debt Arrangement Scheme failing within the first five years, it is clear there are many who are being put into these solutions that should not be in them.

He added: “However, we accept that Protected Trust Deeds are not perfect, and more can be done to improve them. We would hope they could be made more flexible, with a move away from increased Government Regulations that just stifle them, so they can be more tailored to the individual needs of creditors and consumers.

“Also, we would like to see more guidance on how the family home should be dealt with. The Scottish Government did say they would carry out a review of how the family home was dealt with in personal insolvency in 2010, but we are still waiting for that to be carried out. Instead what has happened is the market has adapted and, with the co-operation of creditors, found its own solutions.  This has been based on how they are dealt with in Individual Voluntary Arrangements in England, Wales and Northern Ireland. This has ensured Scottish consumers are being treated fairly and in line with how people are being treated across the UK as a whole.

“We, therefore, welcome this opportunity to examine how we can improve Protected Trust Deeds in Scotland. The key thing is to ensure solutions remain flexible, modern and meet the needs of creditors and consumers in today’s modern society, so we don’t end up back in the Victorian era of Sir Walter Scott, where people have limited options”.

If you have had a Protected Trust Deed with Carrington Dean and want to share your experience with the Parliament let us know.

You could write off up to 75% of unsecured debt with our debt assistant.

Check if you qualify for a Trust Deed

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