Trust deed pros and cons
A trust deed can help some people and cause problems for others. This page sets out both sides plainly, so you know what to ask before you talk to anyone about it.
The pros and cons of a trust deed depend on your situation. On the plus side, you make one affordable monthly payment, a protected trust deed binds your creditors, and the debts included in it that are left at the end are written off if you complete it. On the minus side, there are fees, your credit rating is affected for 6 years, your name goes on a public register, and if it fails you can end up back where you started or in sequestration.
Nobody can tell from a website whether a trust deed is right for you. Free, impartial advice is available from the services in free debt advice in Scotland, and a trust deed should always be compared with the other options.
What are the advantages and disadvantages?
| Possible advantages | Possible disadvantages |
|---|---|
| One monthly payment, set using the Common Financial Tool based on what you can afford | Fees are taken from your payments, so less reaches your creditors |
| Once protected, creditors are bound by it and cannot collect debts from you | Your credit rating is affected for 6 years from the date it begins |
| Earnings arrestments stop having effect once it is protected | Your name and address go on the public Register of Insolvencies |
| No contribution can be taken from Universal Credit or other benefits | Homeowners may need to release equity through a lump sum or extra payments |
| A set payment period, usually 48 months | The period can be longer if payments are missed or equity payments run on |
| If completed, the debts included in it that are left are written off | Not all debts can be included or written off |
| Fees are disclosed on Form 3 and AiB can audit them | Windfalls in the first 4 years, such as an inheritance, go to the trustee |
| It does not carry all the job restrictions of bankruptcy | Some employers do not allow it, and it may limit acting as a company director |
| Payments are reviewed at least yearly and can go down if your income falls | If it fails, creditors can pursue you again and the trustee can petition for your sequestration |
What could work in your favour?
One payment you can afford. Your contribution is worked out using the Common Financial Tool, the set method Scotland uses across its statutory debt solutions, so it should reflect your real income and essential spending. It is reviewed at least once a year and can go down as well as up.
Protection from creditors. Once the Accountant in Bankruptcy (AiB), Scotland’s insolvency service, registers your trust deed as protected, creditors who objected or were not told have no better right to recover their debt than those who agreed. AiB says creditors cannot collect debts from you while you are in a protected trust deed, although they can still send documents such as annual statements.
Wage arrestments stop. An earnings arrestment is a form of diligence (a legal step to recover a debt) where money is taken straight from your wages. It stops having effect once the trust deed is protected.
An end point. If you keep to the terms and co-operate, your trustee applies for your discharge. The debts included in the trust deed that are left are then written off, apart from those the law says cannot be discharged.
Some control over your home. A trustee may agree not to sell your home in return for a lump sum, extra payments and your co-operation. This depends on your equity and your trustee.
What are the downsides and risks?
Fees. Your trustee charges a fixed fee, a percentage fee and outlays, and AiB charges statutory fees. AiB says more of your early payments go on fees and, over time, more goes to your creditors. The fees do not change what you pay, but they reduce what your creditors receive. See what a trust deed costs.
Your credit rating and a public record. A trust deed affects your credit rating for 6 years from the date it begins, which can make it harder to get loans or a mortgage. Your details appear on the Register of Insolvencies, which anyone can search for free, until 12 months after the trust deed ends.
Your home and assets. If you own property, the trustee must deal with the equity. You may need to raise a lump sum or make extra payments, which can extend the trust deed.
Debts that are not written off. Student loans, court fines, compensation orders, debts from fraud and money owed after you sign are not discharged. Secured debts such as a mortgage are also treated differently.
Money you receive later. The trust deed covers money or property you acquire in the 4 years after you sign.
Your job. Some employers, most commonly financial institutions, do not allow staff to have a trust deed. Your trust deed may also stop you acting as a company director unless its terms allow it or your trustee agrees.
If a trust deed fails. AiB says that if a trust deed fails because you do not make your payments or co-operate, creditors can start asking for payment again and may add fees, and you will not get back any money you paid. The trustee can also petition for your sequestration. Read what happens if a trust deed fails.
Want to weigh up the pros and cons for your situation? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.
May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.
How does a trust deed compare with the alternatives?
Every option in Scotland has its own trade-offs:
- The Debt Arrangement Scheme (DAS) repays your debts in full. Interest, fees and charges are frozen and written off when the programme is completed, and a money adviser cannot charge you for setting it up. AiB figures show the average programme lasts about 6 years. See trust deed or DAS.
- Sequestration (Scottish bankruptcy) usually ends with discharge after 12 months, but any contributions run for 48 months and there are more restrictions while you are bankrupt. The application fee is £150, waived for some people, including those on Universal Credit. See trust deed or sequestration.
- The Minimal Asset Process (MAP) is a form of bankruptcy for people with debts of no more than £25,000 and few assets, with no application fee.
- A moratorium on diligence gives 6 months of breathing space from enforcement while you get advice. It does not freeze interest.
So is a trust deed a good idea?
That depends on your whole situation, and only a proper assessment can answer it. Before you talk to anyone, it can help to think about:
- whether you could realistically keep up payments for 4 years
- whether you own a home, and roughly how much equity it has
- whether you could repay your debts in full over a reasonable time
- whether your job or professional body restricts insolvency
- which of your debts would not be written off
An adviser can then explain every option, including ones that are not a trust deed.
Official sources
Common questions
Is a trust deed a good idea?
It depends on your circumstances. A trust deed can suit some people who have a regular surplus income but cannot repay their debts in full in a reasonable time. It also has fees, affects your credit rating for 6 years and carries real risks if it fails. An adviser needs to look at your full situation and compare it with DAS, sequestration and other options.
Will a trust deed stop sheriff officers?
Once a trust deed is protected, the Accountant in Bankruptcy says creditors cannot collect debts from you, and any earnings arrestment stops having effect. Before protection, creditors can still take action. If sheriff officers are involved now, ask an adviser about a moratorium on diligence, which can give 6 months of breathing space from enforcement while you get advice.
What is the biggest risk with a trust deed?
One of the most serious risks is the trust deed failing, for example because payments stop or you do not co-operate with your trustee. Creditors can then start asking for payment again and may add fees, the money you have already paid is not returned, and the trustee can petition for your sequestration. Being realistic about what you can pay for 4 years matters.
Is a trust deed better than bankruptcy?
Neither is better in general. They suit different situations. AiB says bankruptcy, called sequestration in Scotland, might be a better choice if you do not think you can keep up payments for 4 years or more. Sequestration has different rules on your home, your job and how long restrictions last, so an adviser should compare both with your circumstances.
Related guides
- What happens if a trust deed fails? Why trust deeds fail, what to do if you cannot pay, and what happens if yours fails.
- What a trust deed costs How trustee and AiB fees are set, paid and checked, and what to ask about them.
- Trust deed or DAS? The Debt Arrangement Scheme and a protected trust deed compared side by side.
- Trust deed or sequestration? A protected trust deed and bankruptcy in Scotland compared side by side.