What is a Trust Deed?

What is a Trust Deed?

A trust deed is a formal, legally binding document that transfers part or all of the debtors assets (money and property) to a trustee to manage for the benefit of the creditors.  The trustee will probably ask the debtor to pay a sum over to them from their income on a regular basis (similar to an informal debt management programme or DAS).  This is a private arrangement between a debtor and creditors. 

 The advantages of a trust deed for the debtor are

• It avoids the greater expense, formality and stigma of formal bankruptcy 
• There are no penalties or investigations of offences and fewer disqualifications

 The Disadvantages of a trust deed for the debtor are

• Any creditor who objects to the trust deed can still request the debtor's bankruptcy unless the trust deed is recorded in the Register of Insolvencies as a protected trust deed (PTD). In some cases, the trustee can also request sequestration
• Signing a trust deed has serious consequences - you may well lose your home

What is a Protected Trust Deed?

To become protected, a trust deed must meet certain requirements

• The trustee must be a qualified insolvency practitioner
• The trust deed must transfer all assets that would be taken over by the trustee as if the debtor had been sequestrated and
• It must be properly advertised in the Edinburgh Gazette and the trustee must notify all known creditors

A trust deed automatically becomes protected if it meets all these conditions unless a majority in number or one-third in value of the creditors objects in writing within five weeks of its advertisement in the Edinburgh Gazette.   A trust deed is binding on all creditors when it becomes protected (similar to DAS in that it stops creditors from seeking to enforce their debt by diligence or sequestration).   Money advice and expert professional advice, is essential if considering a trust deed.