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02/08/2021

What’s the difference between a protected and unprotected Trust Deed?

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Once your Trust Deed is sent to your creditors, they have a period of 5 weeks during which they can raise objections to details in the arrangement. 

If the majority of your creditors raise no objections to your proposal then your Trust Deed will officially become protected, but you may still be wondering what a protected Trust Deed is, and how it helps you clear your debts?

 

Once your Trust Deed is sent to your creditors, they have a period of 5 weeks during which they can raise objections to details in the arrangement. 

If the majority of your creditors raise no objections to your proposal then your Trust Deed will officially become protected, but you may still be wondering what a protected Trust Deed is, and how it helps you clear your debts?

In this guide we’ll explore Trust Deed protection in detail, including what it is, how a Trust Deed becomes protected, and what happens if creditors don’t agree to protect your Trust Deed. 

What is a protected Trust Deed?

A Trust Deed is a Scottish debt solution that allows people struggling with debt issues to reduce their unaffordable debt repayments to a single monthly contribution, and helps them write off debt that they can’t afford to repay. 

A protected Trust Deed is a Trust Deed that has become legally binding. That means any creditors (or people you owe money to) who are named in the agreement are then bound by the terms of that agreement. 

Once your Trust Deed becomes protected, you won’t have to pay a penny more towards your overall debt than the sum that is outlined in your arrangement, and your creditors won’t be able to chase you for repayment of your debts or seek to take enforcement action against you. 

How does my Trust Deed become protected?

As you know, your Trust Deed will be set up by an Insolvency Practitioner (IP), a debt professional who will act as your supervisor during your arrangement.

When setting up your agreement, your IP will have sent your proposal to your creditors. Your creditors then have a period of 5 weeks within which they can raise objections to the arrangement.

Your Trust Deed will only become protected if:

  • That 5-week period passes with no objections raised
  • Objections raised by creditors are settled
  • Fewer than 50% of the creditors (or creditors representing 33% of the total debt value) object

 

Let’s say you owe £10,000 in debt to five creditors. As long as at least three of those creditors, or the creditors that account for at least £6,700 of your total debt, approve your arrangement, it will qualify for protection. 

What happens if my creditors don’t agree to protect my Trust Deed?

While it is entirely up to your creditors, they will normally only reject the chance to protect your Trust Deed if they have a strong sense they can recoup more of your money through an alternative route. 

The good news is that the majority of creditors usually do eventually agree to grant a Trust Deed protection, and the team at Carrington Dean never put a Trust Deed forward for protection if we don’t believe it has a strong chance of being protected. 

If your request for a protected Trust Deed is rejected, it doesn’t mean your Trust Deed will be cancelled altogether. What it does mean is the effectiveness of your Trust Deed will be severely limited. 

The creditors who accept your proposal are essentially saying they accept the terms of your Trust Deed, and are happy with the level of money they will receive through the arrangement. 

Any creditor who objects to your application, however, will not be bound by the terms of your Trust Deed. That means they’re free to pursue you for the money they owe by other means, up to and including legal action.

Can I carry on with an unprotected Trust Deed?

It is possible to carry on with an unprotected Trust Deed, however you will miss out on some of the key advantages that make a protected Trust Deed such a popular debt solution. 

First of all, the creditors who voted against protecting your Trust Deed are under no obligation to accept the level of payments outlined in the arrangement, and may pursue you for more money. 

Even if those creditors do agree to accept your payments, debt contributions to an unprotected Trust Deed come with interest and charges on top, unlike in a protected Trust Deed. 

That means any debt you owe to the creditors who voted against protecting your Trust Deed could end up larger at the end of the four-year payment term than they were at the beginning, once interest rates and charges are added.

Are there other debt solutions available if I can’t get a protected Trust Deed?

Debt Arrangement Scheme (DAS)

A Debt Arrangement Scheme is another formal debt solution available in Scotland, which is overseen by the Scottish Government. The scheme allows you to set up a Debt Payment Programme (DPP), enabling you to repay your debts at an affordable rate and over a reasonable period of time.

Debt Management Plan (DMP)

A Debt Management Plan is an informal solution for an individual’s unsecured debts. A DMP allows either you or a third party to negotiate monthly payments with your creditors in order to make them more manageable.

Unlike a protected Trust Deed, a DMP is not legally binding, so the arrangement will last as long as it takes for you to repay your debts in full.

Sequestration (Bankruptcy in Scotland)

Sequestration is the legal term for bankruptcy in Scotland, and could be an alternative to a Trust Deed in certain cases. Sequestration involves you making a series of monthly payments to your debts over a period of four years, after which all your debts will be cleared. 

You will have to hand over all your assets, including your home, to be put towards the arrangement however, so sequestration should always be viewed as a last resort.

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