A trust deed is a voluntary, legally binding agreement between you and the people you owe money to (your creditors). It allows you to pay a regular amount of money towards your debts over a fixed period (typically 4 years), with the remainder of your debts being written off at the end.
When one agrees to enter into a trust deed, you take on the responsibilities and obligations of a regular legally binding contract to repay your debt. The arrangement involves transferring your assets to a qualified trustee (an insolvency practitioner) who manages the process on your behalf.
Trust deeds are unique to Scotland and serve as an alternative to bankruptcy (sequestration). Many clients prefer this option over bankruptcy as it is a less formal process.
There are two main types of trust deeds in Scotland:
A protected trust deed, overseen by the Accountant in Bankruptcy, is a voluntary but formal arrangement that is used by Scottish residents where a debtor grants a trust deed in favor of the trustee which transfers their estate to the trustee for the benefit of creditors.
Key characteristics:
An unprotected trust deed is not binding for a creditor (company or other) who doesn't agree to the terms.
Key characteristics:
To qualify for a trust deed in Scotland, you must meet several specific criteria:
You will usually need to have enough income left over after you have paid for essentials (called disposable income) to make a contribution towards your debts. You can't set up a trust deed if your only income is from benefits.
If you want to be referred on to an insolvency practitioner by National Debtline, you will usually need to be able to pay back at least 10p for every £1 you owe to your creditors.
Section 167(3) of the Bankruptcy (Scotland) Act 2016 states that trust deeds granted after 20 January 2025 requires the insolvency practitioner to provide the debtor with the following material and adequate time to consider its contents.
You must be given enough time to think about the information and advice before signing a trust deed. This means the trustee must give you at least three working days to review everything.
The trustee writes to all your creditors enclosing a notice of the trust deed and advising them that it is to become protected.
If a creditor wanted to object, it would do so in writing within five weeks of your Trust Deed being proposed.
A trust deed can become 'protected' if the majority of creditors are happy with the terms of the trust deed.
Even then, it would only fail if that creditor represented over 33% in the total debt value or over one half in number. If 67% agree with the proposal, then the other creditors will still be legally bound by its terms, even if they object.
By obtaining protected status, this means that none of your creditors can take any further action against you for the recovery of their debts. Upon protection, your creditors are legally bound by the terms of the Trust Deed.
It is very rare for a Trust Deed not to be protected with Trust Deed Scotland® and we have one of the best protection rates in our industry, for example, in 2023, we achieved a protection rate of 98.6%.
Some debts cannot be included in a trust deed such as fines, compensation and orders imposed by courts, maintenance due to an ex-spouse for any children under a court order (Not CSA arrears or CMS arrears), or any debts that are secured on your property such as a mortgage or secured loan.
Additional exclusions:
A trust deed transfers your 'assets' (which are valuable things you own) to a trustee so they can be sold to raise money to pay your creditors.
Many people who enter trust deeds are able to keep their homes, but where there is equity, that equity will normally have to be realized to swell the trust deed funds.
If you have equity in your home, you may be required to release some of that equity to contribute to your Trust Deed. This typically involves remortgaging your property or making additional payments.
You will normally be allowed to keep items you need for day-to-day living, such as clothes, furniture, household linens, floor covering, anything used for cooking or cleaning, educational items and children's toys. You can also keep any tools you need for your trade, up to the value of £1,000.
In most cases, you can keep your car if:
Your Trust Deed monthly payments are calculated using your disposable income. Your disposable income is a figure based on a deduction of your essential living costs that are offset against your income.
Where, however, you experience a change in circumstances during your trust deed, such as unemployment, the trustee should review your finances to assess what is an appropriate level of contribution. This may mean you will only have to pay a reduced contribution or no contribution. Likewise, if during a trust deed your circumstances improve, one may be required to pay an increased monthly contribution.
Trust Deeds work by transferring your assets to the Trustee and by you making a single, affordable monthly payment from your income for a minimum period of 48 months.
There should be no upfront costs for setting up a Trust Deed. Instead, your Trustee deducts their fees from your contributions over the duration of the Trust Deed which would normally last 48 months.
The insolvency practitioner will become the trustee for your trust deed. They will charge you a fee for setting up and running the trust deed. They are not allowed to charge their fees at an hourly rate. Instead they have to charge a single, fixed, upfront fee plus a percentage of the assets that they gather in as part of the running of the trust deed.
The trustee will charge fees for setting up and administering your trust deed. The fees are usually about £4,000 or more.
Your trustee's fees can be checked by the 'Accountant in Bankruptcy' (AiB). The AiB can check that the work you have been charged for was necessary and that it was recorded properly.
Your credit rating will be affected and this might make it more difficult to get credit again in the future if you need it. When entering a trust deed a default will be placed on the debtor's credit file which will last for six years.
All protected trust deeds that fall under the Court of Session and within the territorial jurisdiction of Scotland are advertised as a public record in the AiB Register.
Some people are unable to sign a trust deed because of their contract of employment states they cannot enter an insolvency solution.
You cannot continue to be the director of a limited company unless your trustee agrees and unless the rules of the limited company allow you to enter into a trust deed.
While in the protected trust deed, a person may not incur debt of more than £500.
Only creditors who agree to the terms of a trust deed are bound by it. This means that creditors who do not agree could still try to take further action against you, such as applying to make you bankrupt.
As with all formal debt solutions in Scotland, one of the main disadvantages for you will be how it affects your credit rating. Entering into a Scottish debt solution will affect your credit rating for six years from the date the solution begins.
If your Trust Deed is approved, you might face higher interest rates due to the perceived risk associated with your credit history.
However, this impact is not permanent. With responsible financial management and the successful completion of your Trust Deed, you will be able to move on from the debts included in your arrangement, and your credit rating will gradually improve.
Trust deeds can prevent you from:
Some employment contracts specifically prohibit entering insolvency procedures. You should:
Certain professionals may face restrictions:
When you have fulfilled all obligations in terms of your Trust Deed i.e. paid all contributions/complied with your Trustee, then you will be discharged from any debt incurred prior to signing the Trust Deed.
Any remaining unsecured debt (other than those excluded) in your Trust Deed will be written off. We will carry out the required statutory procedures to conclude your Trust Deed and you will then be formally discharged from your Trust Deed.
A statutory form confirming your discharge will be sent to you.
After a minimum of four years the remainder of the debt can be written off.
As per Section 2 of the Bankruptcy (Scotland) Act 2016 your Trustee could petition for your bankruptcy.
Communicating openly with your Trustee is essential to mitigate the risk of your Trust Deed failing. If you ever feel that you might be unable to meet a monthly payment, you should contact your Insolvency Practitioner immediately.
The Accountant in Bankruptcy (AiB) is responsible for personal insolvency issues in Scotland.
They have the power to prevent your trust deed from becoming protected, for example if your outgoings on essentials are much higher than you need.
The trustee must be a person who is qualified to act as an insolvency practitioner. Rules on the qualifications of insolvency practitioner are set out in Section 390 of the Insolvency Act 1986.
A debt payment programme under the Debt Arrangement Scheme (DAS) - this may suit you if you can afford to pay off your debts in full from your disposable income in less than 4 years.
Features:
Bankruptcy (called sequestration in Scotland) – this may suit you if your financial situation has become intolerable because you can't pay your debts as they fall due.
Types:
Trust deeds seeking protection on or after 1 July 2024 (even if granted before that date) will be required to meet more eligibility criteria. This is to ensure that only those with a connection to Scotland can access the PTD regime, with the aim of restricting debt relief tourism.
Section 167(3) of the Bankruptcy (Scotland) Act 2016 states that trust deeds granted after 20 January 2025 requires the insolvency practitioner to provide the debtor with the following material and adequate time to consider its contents.
Updated to take into account The Protected Trust Deeds (Miscellaneous Amendment) (Scotland) Regulations 2024 which came into force on the 1st July 2024. New additions to the guidance includes: Removal of protected status of a trust deed and a review process, Debtor discharge due to extenuating circumstances prior to the 48 month minimum term and Trustee refusal of debtor discharge process.
A: Trust Deeds work by making a single, affordable monthly payment from your income for a minimum period of 48 months. Most trust deeds last exactly 4 years (48 months).
A: Many people who enter trust deeds are able to keep their homes, but where there is equity, that equity will normally have to be realized. You may need to remortgage or make additional payments to release equity.
A: While in the protected trust deed, a person may not incur debt of more than £500. A common misconception is that credit can continue to be used while in a trust deed, however, this could result in criminal charges.
A: Entering into Trust Deeds will not affect your partner or spouse unless you have joint debt together. Joint debts require both parties to address their liability.
A: As per Section 2 of the Bankruptcy (Scotland) Act 2016 your Trustee could petition for your bankruptcy if you fail to comply with the trust deed terms.
A: The expected debt write-off figure of up to 70% is based on 1,671 Protected Trust Deeds currently administered by Trust Deed Scotland® and protected between 1 January 2023 and December 31 2023. Individual results vary based on circumstances.
A: Trust deeds are public records, but Unless someone is specifically checking the Registers to find out if you have been declared bankrupt or are doing a DAS, it is unlikely that the information will be accessed by the general public. However, some employment contracts may require disclosure.
A: Generally yes, but you should inform your trustee of extended travel plans and ensure you can maintain your monthly payments.
A: Where you experience a change in circumstances during your trust deed, such as unemployment, the trustee should review your finances to assess what is an appropriate level of contribution. Payments can be adjusted up or down based on changing circumstances.
A: Yes, some debts cannot be included in a trust deed such as fines, compensation and orders imposed by courts, maintenance due to an ex-spouse for any children under a court order, or any debts that are secured on your property such as a mortgage or secured loan.
Trust deeds represent a significant debt solution for Scottish residents struggling with unaffordable unsecured debt. While they offer substantial benefits including debt write-off, legal protection, and affordable payment plans, they also carry important consequences including credit rating impact, asset considerations, and public record entries.
The decision to enter a trust deed should be made after careful consideration of all available options and with full understanding of both the benefits and drawbacks. Professional advice from a qualified insolvency practitioner is essential to determine whether a trust deed is the most appropriate solution for your specific circumstances.
With recent legislative changes strengthening the framework and improving consumer protection, trust deeds continue to provide an effective alternative to bankruptcy for thousands of Scottish residents each year, offering a structured path toward financial recovery and a fresh start.
For more information about trust deeds in Scotland and professional debt advice services, you may find this resource helpful:
Trust Deed Scotland - Carrington Dean
This guide is for informational purposes only and should not be considered as financial or legal advice. Always consult with a qualified professional before making decisions about debt solutions.