Will a trust deed affect my job?

A trust deed does not usually stop you working, and it does not bring the automatic bans on certain jobs and public offices that come with sequestration (bankruptcy in Scotland). But some employers, most commonly financial institutions, do not allow staff to have a trust deed, and you may not be able to act as a company director unless your trustee agrees. Check your employment contract before you sign.

Can your employer stop you working if you have a trust deed?

mygov.scot says some employers do not allow people who have signed a trust deed to work for them, and that the most common are financial institutions. It suggests checking your employment contract or speaking to your employer before you sign.

Before you sign, your trustee (the licensed insolvency practitioner who will run the trust deed) must warn you that a trust deed may damage your business interests and employment prospects. Ask them about your own job specifically.

A protected trust deed is listed on the public Register of Insolvencies, and guidance from the Accountant in Bankruptcy (AiB), the public body that supervises trust deeds in Scotland, reminds trustees that any member of the public can view those details. An employer could therefore find out about it whether or not you tell them. The entry is removed 12 months after the trust deed ends.

What about jobs in financial services?

Some people who work in banking, insurance, lending or financial advice have to be assessed as “fit and proper”. The Financial Conduct Authority’s (FCA) guidance on this lists financial soundness as one of the things considered, including whether the person has made arrangements with their creditors or had assets sequestrated.

That makes a trust deed something your employer can take into account. It is a factor to be weighed rather than an automatic bar, and the FCA says limited financial means do not in themselves affect whether someone is suitable. If you work in financial services, check your contract and your employer’s policies before you sign.

If your job is regulated by a professional body, check its rules or contact it in confidence.

Can you be a company director during a trust deed?

mygov.scot says you cannot be a company director unless your trustee agrees, and Citizens Advice Scotland says you cannot be a director of a limited company unless the terms of your trust deed allow it. In practice it comes down to the terms of your trust deed and your trustee’s agreement. Your trust deed may restrict this, so check with your trustee before you sign. The company’s own rules (its articles of association) may also be relevant.

If you run your own business as a sole trader, a trust deed can affect it in other ways. See trust deeds for the self-employed.

How are your wages affected?

Your monthly payment comes from your surplus income, worked out using the Common Financial Tool (the official method used in Scotland to set your essential spending). You normally pay it to your trustee yourself.

Earnings arrestments stop

An earnings arrestment is a court-backed deduction from your wages that a creditor arranges through sheriff officers (officers of the court who enforce debts). Once your trust deed is protected, any current earnings arrestment stops having effect, and a creditor cannot start a new one for a debt included in the trust deed. See earnings arrestment.

If you miss payments

AiB’s guidance says that if you miss two payments in a row, your trustee can ask you to instruct your employer to pay your contribution direct from your wages, using an official form. If you refuse, the trustee can instruct your employer directly. Your employer may charge a fee for doing this, taken from your wages. Missing payments can also lead to your trust deed being extended, to you not being discharged from your debts, or to the trustee petitioning for your sequestration.

Pay rises, new jobs and extra hours

Your payment is reviewed at least once a year, and it can go up if your income rises or down if it falls. Tell your trustee straight away about a new job, a pay rise or a change in your hours, rather than waiting for the review.

What if you lose your job or are made redundant?

Tell your trustee straight away. mygov.scot says that if your income falls, your trustee may agree to reduce your payment or give you a payment break. You will usually need to fill in a new income and expenditure form and show evidence of the change.

Redundancy payments need care. AiB’s guidance on contributions says:

• your trustee has to work out whether any part of a redundancy severance payment is passed to the trust deed
• pay in lieu of notice is treated as income for the period it covers
• statutory redundancy pay is looked at in the period you receive it.

So do not spend a redundancy payment until you have spoken to your trustee. If you move onto benefits, no contribution can be taken from Universal Credit or other social security benefits. See if your circumstances change.

Weighing up your options

A trust deed also affects your credit rating for six years, has fees, may mean releasing equity in your home, cannot include every debt, and if it fails, creditors can pursue you again and your trustee can petition for your sequestration. If your job could be affected, ask an adviser how each option would affect your work, including the Debt Arrangement Scheme (DAS), sequestration and the Minimal Asset Process (MAP). Free, impartial debt advice is available.

Official sources

• mygov.scot: how a trust deed could affect you
• FCA Handbook, FIT 2.3: financial soundness
• AiB Notes for Guidance, protected trust deeds, 2.14: contributions paid by an employer
• Bankruptcy (Scotland) Act 2016, section 173: earnings arrestments on protection
• Citizens Advice Scotland: trust deeds