If you’re struggling with debt in Scotland, you might have heard about Protected Trust Deeds as a way to take control of your finances. A Protected Trust Deed is a formal agreement that allows you to repay part of what you owe, with most remaining debts written off after the agreed period—usually four years. Knowing how Protected Trust Deeds work, who qualifies, and what the implications are can make a big difference to your decision-making.
You’ll find out what debts can be included, how your assets are affected, and what the step-by-step process looks like. This post gives you clear and concise facts, so you’ll know exactly where you stand if you’re considering this debt solution.
What Is a Protected Trust Deed?
A protected trust deed is a formal debt solution available in Scotland that offers legal protection from creditors. It is a legally binding agreement designed to help you manage unsecured debts you can’t afford to repay in full.
Legal Definition and Overview
A protected trust deed is a legally recognised, voluntary arrangement between you and your creditors, overseen by a licensed insolvency practitioner. The deed allows you to make affordable monthly payments towards your debts, usually over four years.
Once your trust deed is protected, creditors included in it can’t take legal action against you or add more interest or charges. You’ll typically need to owe at least £5,000 in unsecured debt, live in Scotland, and have enough income to make regular payments after living costs.
Your name and details will appear on the public Register of Insolvencies. While the process provides legal protection, it will affect your credit rating for six years from the start of the agreement.
How Protected Trust Deeds Work
After contacting an insolvency practitioner, your financial situation is reviewed to determine what payments you can realistically afford. The practitioner deals with your creditors and manages all communication, relieving you from direct creditor contact.
If most of your creditors (by debt value) agree to the terms, the deed becomes protected. This means it is legally binding on all relevant creditors, even those who did not agree. You make one monthly payment for the set term, usually four years.
At the end of the period, any unpaid included debts are written off. Secured debts (like mortgages) and certain debts (such as court fines or student loans) cannot be included in a trust deed.
Protected vs Unprotected Trust Deeds
Not all trust deeds become protected. An unprotected trust deed is not legally binding on all creditors. Creditors may still pursue legal action or request extra payments, and interest may continue to accrue.
A protected trust deed gives you full legal protection from creditor enforcement and freezes most interest and charges. Only protected trust deeds appear on the Register of Insolvencies and shield you from further legal action on covered debts.
| Feature | Protected Trust Deed | Unprotected Trust Deed |
| Legal Binding (all creditors) | Yes | No |
| Stops legal action | Yes | No |
| Freezes interest/charges | Yes | Sometimes |
| Publicly recorded | Yes | No |
Eligibility Criteria for Protected Trust Deeds
To qualify for a protected trust deed, you must meet specific requirements relating to your debts, income, and place of residence. These factors influence your eligibility and ensure the arrangement is legally binding in Scotland.
Qualifying Debts and Minimum Requirements
A protected trust deed is available if you have unsecured debts of at least £5,000. Only certain types of debt qualify, such as credit cards, personal loans, overdrafts, and store cards. Secured debts, like mortgages or car finance, are not included.
You must be able to make regular payments towards your debt from your disposable income. Typically, your monthly payments are based on what you can reasonably afford after covering essential living costs.
You cannot be in another formal debt solution or currently bankrupt. You also need to have at least two creditors. The deed usually lasts four years, although in some circumstances it may be longer or shorter.
Residency and Jurisdiction Rules
Protected trust deeds are only available if you live in Scotland or have lived there in the last 12 months. This debt solution is specific to Scots law and does not apply elsewhere in the UK.
You must provide proof of address, such as utility bills or other official documentation. If you have recently moved to Scotland, you must be able to demonstrate a clear connection to your current Scottish address.
Anyone considering this option must consult a qualified insolvency practitioner authorised to operate in Scotland. Only a Scottish insolvency practitioner can act as your trustee throughout the process.
The Protected Trust Deed Process
To set up a Protected Trust Deed in Scotland, you must follow legal steps to ensure your creditors and assets are handled correctly. This process involves preparing an application, working with an Insolvency Practitioner, and obtaining creditor approval.
Application and Setup Procedures
You must live in Scotland and owe at least £5,000 in unsecured debts to qualify for a Protected Trust Deed. Begin by contacting an Insolvency Practitioner (IP), who will assess your situation and explain your options. If proceeding, you provide details about your income, expenses, debts, and assets.
The IP uses this information to draft a Trust Deed proposal. This proposal outlines how much you will pay each month, usually over four years, and what assets (if any) are included. You will review and sign legal documents, authorising the IP to act on your behalf.
Once signed, the Trust Deed becomes a formal legal agreement. It is then registered with the Accountant in Bankruptcy, making the details public and starting the 5-week creditor response period.
Role of the Insolvency Practitioner
The IP is a licensed professional responsible for managing the entire Trust Deed process. Their role begins with providing impartial advice and conducting a thorough financial review to check your suitability. Once appointed, the IP acts as “Trustee”, handling negotiations with your creditors.
The IP’s duties include preparing financial statements, sending proposals to creditors, and collecting your agreed monthly payments. They distribute this money fairly among creditors according to the terms of the Trust Deed.
Throughout the arrangement, the IP offers guidance, manages administration, and ensures compliance with Scottish insolvency laws. If any issues arise, such as changes to your income, you must inform your IP for reassessment.
Creditor Approval and Objections
Creditors have five weeks to respond after your Trust Deed is registered. For the deed to become “protected”, less than a third in total value or number of creditors can object. If too many object, the deed will not gain protected status and further formal insolvency options may be needed.
If protected, your creditors cannot take further legal action against you for the included debts. They are legally bound by the Trust Deed terms, even if they objected but did not reach the blocking threshold.
All objections or agreements by creditors are managed directly by the IP. You are kept informed of all decisions, but the process is designed to be handled on your behalf.
Implications and Obligations
A Protected Trust Deed affects several areas of your finances, including your credit profile, legal duties, and how your assets and income are treated during the arrangement. Each aspect brings specific requirements and consequences.
Impact on Credit Rating
When you enter into a Protected Trust Deed, it will be recorded on your credit file for six years. This can make it more difficult to obtain credit, such as loans, credit cards, or a mortgage, during and after the deed.
Lenders may view you as a higher risk. As a result, you are likely to be offered less favourable terms or be refused credit altogether. Some employers, especially in the financial sector, may also take your credit record into account.
Your details will also appear on the publicly accessible Register of Insolvencies in Scotland while the Trust Deed is active. This can affect your financial reputation and privacy for the duration.
Responsibilities During the Deed
You must make regular payments as agreed with your Trustee, giving accurate information about your finances. These payments are usually made monthly and are based on what you can reasonably afford.
Failure to meet your payment obligations can result in your Trust Deed failing. This may lead to further action from creditors, such as sequestration (bankruptcy).
You are also required to inform your Trustee of any changes to your income or assets during the arrangement. This includes any windfalls, pay rises, or bonuses, which may need to be paid into the Trust Deed.
Effects on Assets and Income
Some assets may be sold to help repay your debts. This can include valuable possessions, vehicles (unless essential for work or family needs), or property if there is significant equity.
Regular household goods, tools required for your trade, and reasonable personal possessions are typically excluded. However, any significant changes in your financial circumstances, such as a large inheritance or a new job with substantially higher pay, must be declared.
Your disposable income will be assessed and monitored throughout the arrangement. Any extra income may increase your regular contribution amounts, according to what is fair and affordable.
Ending a Protected Trust Deed and Next Steps
When your Protected Trust Deed ends, your remaining qualifying debts are usually written off, so you no longer have to pay them. It is important to know what happens next and how this affects your financial situation and credit file.
Life After a Protected Trust Deed
Once your Trust Deed is complete, your creditors cannot pursue you for any included debt. You will receive confirmation from your Trustee that your obligations have ended. Your credit file, however, will show the Trust Deed for six years from the start date.
Rebuilding your credit takes time. You can start by making sure your name is on the electoral roll and maintaining regular payments on any new or remaining credit commitments. Check your credit report for errors and consider using basic bank accounts if you cannot access standard products.
Key next steps after completion:
- Confirm discharge with your Trustee
- Review your credit report
- Consider financial planning for the future
Staying disciplined with money management helps you recover financially and avoid similar issues in future.
