Avoiding Bankruptcy With a Scottish Protected Trust Deed

If you are facing bankruptcy in Scotland, a Protected Trust Deed can help you avoid it by enabling a trustee to communicate with your creditors and arrange to pay them from your assets that your trustee also holds. It is a legal arrangement that your creditors must adhere to once it has been set up.

In a regular Trust deed, you agree to tranbsfer your assets to a trustee, who then communicates with your creditors and arranges your payments. The repayments are made initially from any cash you agree to pay into the trust while it is running, and the shortfall will be taken from your assets such as your home or its contents, although any essential items of furniture such as your bed,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 is different in that even if creditors object to it, they can take no further action if over two thirds agree. They must accept the terms of the 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.

If any of your creditors wish to object they have five weeks in which to do it, starting from the date of your notice being published 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 is last chance saloon, and only to be used as a final thow of the dice before you become 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 therefore a serious step to take, and should only be used as a final step before bankruptcy. All of the creditors must correspond with the trustee, and not with you directly, even those that 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. You must also inform the trustee should your financial situation change (such a lottery win, bonus or any other windfall).

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.

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