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A Protected Trust Deed, or, indeed - if not afforded "protected" - a Scottish Trust Deed, is a formal, legally binding agreement between a debtor and his or her creditor(s) that debt is to be repaid by monthly instalments over a specific period of time. A Protected Trust Deed is exclusively available to individuals, sole traders and partners in Scotland, but is similar, in many respects, to the IVA ("Individual Voluntary Agreement") available in England and Wales.
A proposal is usually drawn up under the supervision of a licensed insolvency practitioner, and a notice is posted in the "Edinburgh Gazette" and circulated to any creditors involved. If the proposal is accepted by at least half of the creditors - or those who represent two-thirds of the total value of the debt - within 5 weeks of the date of the notice, the trust deed becomes "protected". This means that any other creditor must accept the proposal, and, furthermore, no creditor is permitted to contact a debtor directly for the duration of the agreement - usually 36 months - or take any action to pursue the outstanding debt. Interest on debt(s) is frozen and no further additional charges can be applied.
Contrary to popular belief, many creditors are sympathetic to the plight of a debtor - it is after all in their best interest to recover as much of their debt as possible - and may, if you communicate openly with them, be prepared to accept a Protected Trust Deed for less than you actually owe. Subject to individual circumstances, it may be possible for anything up to 90% of debt to be "written off" so there is a real possibility of a debtor being free from debt, and the worry associated with it, at the end of the 36-month period; that is, of course, provided that he or she keeps up the repayments described in the proposal. Monthly repayments are, however, calculated to be affordable, provided that a debtor lives within his or her means.
You need not necessarily be a homeowner to sign a Protected Trust Deed, but if you are, a Protected Trust Deed can allow you to keep your home rather than losing it by petitioning for bankruptcy. A Protected Trust Deed can also help you to avoid restrictions on your future financial dealings, work, etc., and the general stigma associated with becoming bankrupt. Do bear in mind, however, that you may still need to sell your home if your debts cannot be repaid by other means and some restrictions do still apply. You do, of course, also need to keep your insolvency practitioner, or trustee, informed of any changes in your financial circumstances, income, etc. - whether good or bad - for the term of the agreement.
A Protected Trust Deed may not be suitable for everyone - not everyone qualifies, and mortgages, or any loan secured assets, and student loans, for example, are exempt - so it is important that you seek independent, professional advice as to whether or not a Protected Trust Deed is appropriate in your own financial situation.
