The Scottish Equivalent of an IVA
A closer look at Protected Trust Deeds
What is a Protected Trust Deed?
A Protected Trust Deed is the Scottish equivalent of an IVA. It works in the same way as an IVA in that it allows you to make a proposal to your creditors to pay one fixed monthly repayment over three years (five years in an IVA) which is then divided amongst them by your Insolvency Practitioner.
The payments you make will total less than the overall debt you owe but if your creditors choose to accept your proposal, they are committing to receiving this reduced amount as a full and final settlement of their claim against you.
As with an IVA proposal, your creditors have the right to vote whether to accept or reject your proposal but where they vote to accept it, both you and they are legally bound by its terms.
Your assets in a Protected Trust Deed
When you sign a Trust Deed your assets are transferred to the nominated Insolvency Practitioner, who then becomes your Trustee.
If you have any equity in your home, this will be released for the benefit of your creditors, which may mean remortgaging or selling your home. Other valuable assets such as cars may also be sold off; this excludes vehicles financed by H.P. as it’s the finance company who legally own the vehicle.
Trust Deed advantages in brief
- Your creditors will be legally bound by the terms of your Trust Deed even if they voted against your proposal. Once your trust deed has been formally accepted it will then become ‘protected’. If a majority of your creditors vote against your proposal or 1/3rd of them by value object, your Trust Deed will not go ahead.
- Protected Trust Deeds place fewer restrictions on you than sequestration (Scottish equivalent of bankruptcy) so you could still hold public office or run your own business for example.
- You’ll know exactly how much you’ll have to pay every month for three years, after which you will be debt free.
- Your credit rating will be adversely affected by having a Protected Trust Deed.
- You may have to sell your car and release any equity in your home to pay back your creditors.
- If you fail to keep up with your Protected Trust Deed monthly payments without good reason, then the Insolvency Practitioner can petition for your sequestration and you could lose your home as a result.