Getting discharged from a trust deed

Discharge from a trust deed is the legal step that releases you from the debts included in it. When your payments end, your trustee confirms you kept to the terms and co-operated, then applies to the Accountant in Bankruptcy (AiB), and you are discharged on the date AiB registers the application. Discharge is not automatic, and some debts, such as student loans and court fines, are never written off.

AiB is the Scottish agency that supervises trust deeds. Your trustee is the licensed insolvency practitioner who runs your trust deed and pays your creditors.

What does discharge mean?

There are two separate discharges at the end of a protected trust deed, and it helps not to confuse them.

• Your discharge (debtor discharge) releases you from the debts in the trust deed. This is the one that matters most to you.
• The trustee’s discharge releases the trustee from their role once they have paid out the money to creditors and closed the case.

They are separate legal steps. The date of the trustee’s discharge also matters to you, because your entry on the public Register of Insolvencies is removed 12 months after the trust deed ends. See the Register of Insolvencies.

How do you get discharged at the end?

Under the Bankruptcy (Scotland) Act 2016, two conditions must be met:

1. your trustee makes a formal statement that, to the best of their knowledge, you have met your obligations under the trust deed and co-operated with them
2. any inhibition on your property has been recalled or has expired. An inhibition is a notice registered against property that stops you selling it or borrowing against it

Then:

• the trustee sends AiB an application for your discharge and sends you a copy
• AiB registers it in the Register of Insolvencies, and the date of registration is the date of your discharge
• AiB tells the trustee, and the trustee must tell you and every creditor they know about within 7 days

AiB’s guidance is clear that discharge is not automatic. A trust deed is a voluntary arrangement, and you are expected to give information about your assets, debts, income and spending, co-operate with selling assets where needed, and pay your contributions.

The same guidance also says it would not be appropriate to refuse your discharge because of circumstances beyond your control, such as:

• a change in circumstances that stopped you paying your contribution
• extenuating circumstances that stop you meeting your obligations with no reasonable prospect of that changing
• an asset selling for less than the trustee originally estimated

Refusing to agree to the sale of a home that was excluded from the trust deed is not treated as failing to meet your obligations either.

What happens to your remaining debts?

On discharge, you are discharged from all the debts in the trust deed, and the other debts you were liable for on the date you signed. mygov.scot says your creditors will then not be able to chase you for money you owed them before you signed the trust deed.

Discharge does not cover:

• debts you took on after the date you signed
• fines and other penalties owed to the Crown, and fines from a justice of the peace court
• compensation orders made by a criminal court
• debts arising from fraud or breach of trust
• aliment (maintenance you are legally bound to pay), with limited exceptions for some past arrears
• student loans
• secured debts where the lender agreed not to claim in the trust deed, and the rights of any secured lender over your property

See which debts can go into a trust deed for the full picture. If money is left in the trust deed after fees and creditors’ claims have been paid in full, AiB’s guidance says it should go back to you.

Your credit rating is affected for 6 years from the date the trust deed began, so discharge does not clear your credit file straight away.

What if your discharge is refused?

Discharge can be refused in two ways.

AiB refuses to register it

AiB can refuse to register your discharge if it is not satisfied you met your obligations or co-operated. Its guidance gives examples, such as not declaring all your assets and income, or not paying the right amount and number of contributions. AiB must tell you and the trustee in writing, with its reasons. If the problem can be put right, the trustee can apply again. You can also appeal to the sheriff (a judge in your local sheriff court) within 21 days, and the sheriff’s decision is final.

Your trustee wants to refuse

Since 1 July 2024, a trustee cannot simply refuse to discharge you. If they consider you have not met your obligations or co-operated, they must apply to AiB for agreement, setting out their reasons.

• If AiB agrees, the trustee must write to you within 7 days explaining the reason, that you are not discharged from your debts, and that you have the right to apply to the sheriff for a direction.
• If AiB considers you should be discharged, it must give the trustee whatever direction it considers appropriate.

If you think a refusal is wrong, act quickly. Ask your trustee for their reasons in writing and get free, impartial advice from the services in free debt advice in Scotland.

Can you be discharged early?

Since 1 July 2024, the law has allowed early discharge in extenuating circumstances. It applies where the trustee considers that circumstances affecting you mean you can no longer meet your obligations, there is no reasonable prospect of you being able to resume, and you should be discharged before the end of the payment period.

AiB’s guidance says the circumstances must be outside your control. It gives a condition or illness as examples, says they are not limited to health, and says a period of unemployment on its own would not normally be enough. The trustee must keep evidence.

The process:

1. The trustee writes to your creditors explaining why early discharge is proposed and asking them to agree. If you do not want sensitive personal details shared, the trustee must still give creditors enough information to explain the circumstances.
2. Creditors have 21 days to object. Unless a majority in number, or creditors owed at least one third in value, object, the trustee applies to AiB and your discharge is registered.
3. If enough creditors object, the trustee must ask AiB to review the proposal. AiB decides whether it is fair and reasonable for you to be discharged. If it is not, AiB issues a direction to the trustee, which can be appealed to the sheriff.

An early discharge has the same effect as a normal one, with the same exceptions. If your circumstances have changed, see what happens if a trust deed fails for other steps you can take.

What is the trustee’s discharge?

Once the trustee has made the final payment to your creditors, they have 28 days to ask the creditors to agree to their discharge. A creditor who does not reply within 14 days is treated as agreeing, and the trustee is discharged if a majority in value consent. The trustee then has 28 days to send AiB a statement of how your estate was realised and shared out, which is recorded in the Register of Insolvencies.

The 12 months before your entry comes off the register run from the trustee’s discharge, so it is worth asking your trustee when they expect it.

How does this compare with other options?

Discharge works differently in each Scottish debt solution. In sequestration (bankruptcy in Scotland), discharge comes after 12 months, although you may have to keep paying contributions for longer. In the Minimal Asset Process it comes after 6 months. In the Debt Arrangement Scheme there is no discharge in the same sense: you repay your debts, and interest, fees and charges are frozen and written off when the programme is completed. An adviser can explain which would suit your situation. See sequestration.

Official sources

• Bankruptcy (Scotland) Act 2016, section 184: discharge of the debtor
• Bankruptcy (Scotland) Act 2016, section 184A: refusal of discharge
• Bankruptcy (Scotland) Act 2016, section 184B: early discharge in extenuating circumstances
• AiB Notes for Guidance, section 9: debtor’s discharge
• mygov.scot: at the end of the trust deed