What is a trust deed?
A trust deed is a formal debt solution that only exists in Scotland. Here is what it is, who is involved and what it could mean for you.
A trust deed is a formal, legally binding arrangement under Scots law in which you hand over (convey) your estate, meaning your assets and a share of your income, to a trustee for the benefit of your creditors. You usually make monthly payments for 48 months. If the trust deed becomes protected and you keep to its terms, the debts included in it that are left at the end are written off (discharged).
A trust deed is one of several ways to deal with debt in Scotland. It has fees, it affects your credit rating and it goes on a public register, so it helps to understand it fully before you consider it. Free, impartial help is available from the services listed in free debt advice in Scotland.
What does a trust deed actually do?
The law behind trust deeds is Part 14 of the Bankruptcy (Scotland) Act 2016. It describes a trust deed as a voluntary deed in which your estate passes to a trustee for your creditors as a whole.
In practice, that means:
- you sign the trust deed (lawyers call this “granting” it), which transfers your estate to the trustee
- you make regular payments from your income, worked out using the Common Financial Tool, the set method used across Scotland to decide what you can afford after essential spending
- the trustee deals with any assets you have, such as equity in your home or a valuable car
- the trustee pays the costs of the trust deed, including their own fees, and shares the rest among your creditors
- at the end, if you have kept to the terms and co-operated, the trustee applies for your discharge
The deed also covers money or property you receive in the 4 years after you sign it, such as an inheritance or a large bonus. You must tell your trustee about it. There is more on this in windfalls and inheritance in a trust deed.
Who is involved in a trust deed?
| Who | Their role |
|---|---|
| You | Sign the deed, make the agreed payments, give the trustee information and tell them about any change in your finances. |
| Your trustee | A qualified insolvency practitioner who runs the trust deed, collects your payments, deals with your assets, pays your creditors and applies for your discharge. |
| Your creditors | The people and organisations you owe money to. They are sent the details, can object during a 5-week period, and receive payments (dividends) from the trustee. |
| Accountant in Bankruptcy (AiB) | Scotland’s insolvency service. It registers the trust deed notice and, if all is in order, registers the deed as protected. It supervises trustees and audits their fees. |
The law says the trustee must be someone who could act as a trustee in a sequestration, which rules out anyone who is not a qualified insolvency practitioner.
What is a protected trust deed?
A trust deed only gives you real security once it is protected. After you sign, the trustee registers a notice on the Register of Insolvencies, a public list kept by AiB, and sends your creditors the details. Creditors then have 5 weeks to object.
The trust deed is treated as accepted unless the trustee receives written objections from a majority in number of your creditors, or creditors owed at least one third of the total value of your debts. If not enough object, the trustee sends the papers to AiB, and AiB registers the deed as protected if it is satisfied the conditions are met.
Once a trust deed is protected:
- creditors who objected or were not told about it have no better right to recover their debt than those who agreed
- any earnings arrestment (a form of diligence where a creditor has part of your wages taken directly from your pay) stops having effect
- AiB says creditors cannot collect debts from you, although they can still send you important documents, such as annual statements
There are limited exceptions. A creditor who objected, or who was not told, can still ask the court to make you bankrupt within 5 weeks, or at any time if the way the trust deed shares out money is unduly unfair to them.
If a trust deed is not protected, creditors can still take action to recover what you owe, and they can ask the court to make you bankrupt. There is more detail in how a trust deed becomes protected.
Scotland is different. Individual voluntary arrangements (IVAs), used in England and Wales, do not extend to Scotland, and debt relief orders are an England and Wales process too. In Scotland, debts are enforced by sheriff officers (officers of the court) rather than bailiffs. See whether you can get an IVA in Scotland.
Want to talk your options through? 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.
What are the risks of a trust deed?
Before signing, your trustee must warn you that a trust deed may lead to your sequestration, cause problems getting credit, mean you have to give up property, require you to pay contributions, affect your job or business, and become public. In more detail:
- Your credit rating will be affected for 6 years from the date the trust deed begins.
- Your name and address go on the public Register of Insolvencies. Your details are removed 12 months after the trust deed ends.
- Fees are taken from your payments, so less of your money reaches your creditors.
- If you own a home, you may need to release equity, for example through a lump sum or extra payments.
- Not all debts can be included or written off. Student loans, court fines and debts from fraud are among those that are not discharged.
- If it fails, for example because you stop paying or do not co-operate, creditors can start asking for payment again and may add fees, and the trustee can petition for your sequestration.
What else could you consider?
A trust deed is not the only option. Depending on your situation, an adviser may talk to you about:
- The Debt Arrangement Scheme (DAS), where you repay your debts in full through a debt payment programme. 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.
- Sequestration, Scotland’s form of bankruptcy.
- The Minimal Asset Process (MAP), a form of bankruptcy for people with debts of no more than £25,000 and few assets.
- A moratorium on diligence, which gives 6 months’ breathing space from creditors’ enforcement action while you get advice. It does not freeze interest.
- An informal debt management plan, which is not legally binding.
You can see them side by side in Scottish debt solutions compared.
Official sources
Common questions
Is a trust deed the same as bankruptcy?
No. Bankruptcy in Scotland is called sequestration and is a separate process with its own rules, fees and restrictions. A trust deed is an agreement you choose to sign with a trustee. Both are formal insolvency solutions, both appear on the public Register of Insolvencies and both affect your credit rating. An adviser can explain how they compare for you.
Is a trust deed a government scheme?
No. A trust deed is a legal process under the Bankruptcy (Scotland) Act 2016. Your trustee is a qualified insolvency practitioner whose fees come out of your payments. The Accountant in Bankruptcy registers protected trust deeds, supervises trustees and keeps the public register, but a trust deed is not a government offer or a government-run service.
What does protected mean in a protected trust deed?
A trust deed becomes protected when not enough creditors object during the 5-week objection period and the Accountant in Bankruptcy registers it as protected. From then on, creditors who objected, or who were not told about it, have no better right to recover their debt than those who agreed, with limited exceptions. An unprotected deed gives you much less security.
Can I leave some debts out of a trust deed?
A trust deed conveys your estate for the benefit of your creditors generally, so it is not designed for picking and choosing debts. Some debts, such as student loans, court fines and anything you owe after signing, are not written off at the end in any case. Ask the trustee to explain how each of your debts will be treated before you sign.
Related guides
- How a trust deed works The steps and timeline of a trust deed, from advice and signing to discharge.
- Trust deed pros and cons The advantages and disadvantages of a trust deed, set out side by side.
- How a trust deed becomes protected The register notice, the five-week objection period, and what happens if protection is refused.
- Trust deed or sequestration? A protected trust deed and bankruptcy in Scotland compared side by side.