Assets and Protected Trust Deeds

30th November 2010

The effect of signing a Trust Deed

When you sign a Trust Deed you are handing over control of your assets to your Trustee. You are also agreeing to allow the Trustee to assess, for the period of the trust deed, how much you can afford to pay towards your debts each month from your income. Through a combination of contributions from your income and from any significant assets that you own, the Trustee will seek to realise funds that can help to repay some of your debts.

What is an asset?

The Trustee has a legal responsibility to collect money towards your debts. They will therefore only be interested in assets that can potentially help to repay your creditors. For this reason a home that has no equity (or that is in negative equity) will not be considered currently to be an asset. The same will apply to vehicles of modest value as the costs of sale may exceed the money that would be raised by such a sale. Other types of assets might include savings or endowment policies. Pensions are generally excluded from being considered to being an asset for the purposes of a trust deed. Another type of asset might be something of value that comes into your possession during the course of a trust deed. The technical term for this is “acquirenda”. This might include an inheritance or lottery win for example.

Realising the asset

The Trustee will not necessarily require the sale of assets such as your home (or a car of significant value) if you sign a trust deed. They are interested in the generation of the money itself rather than in actually taking the property from you. Because of this people often sign trust deeds in preference to bankruptcy as greater provision may be made to hold onto valued and important assets. By way of example it might be assessed that there is £5000 of equity in your home and, when you sign the trust deed, you agree to pay this sum in addition to the affordable monthly contribution. It used to be the case that people would seek to remortgage their homes to release equity to make this payment but this type of mortgage is now largely unavailable. As an alternative a third party (such as a family member or friend) may pay the funds to the Trustee for you, or it may be possible to extend your protected trust deed with additional monthly payments to cover this sum.

Get it in writing

We advise that you do not sign a trust deed unless your trust deed company has specifically stated to you, in writing, exactly how your assets (including your home and car) will be treated. It is important that this covers what will happen if your house increases in value during your protected trust deed. Getting this information in writing will go a long way towards protecting you should disputes arise in the future.

Don’t sign without having a plan

Be thoughtful about the commitment that you are making before you sign a Scottish trust deed. Once you have signed the trust deed it is legally binding. By way of example let’s assume that you have £20000 of equity in your home and that keeping your home is very important to you. If you sign a trust deed you will need to find a way to generate that £20000 to bring the trust deed to an end. If you cannot generate the money your Trustee may be left with no option other than to sell your home to raise the money. In this case it may have been better to proceed with the Debt Arrangement Scheme or a debt management plan where the equity in a home may not specifically be included in the debt repayment arrangement.

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