Look closely at the terms of your trust deed

17th August 2011

A number of the questions raised in our Scottish trust deed forum relate to the restrictions placed upon an individual once they have signed their Scottish trust deed and it has gone on to become a protected trust deed. It is important anyone considering signing a trust deed understands it is a legally binding arrangement with serious consequences should certain rules be ignored.

These restrictions, in common with many aspects of a trust deed, share a starting point with bankruptcy. An Accountant in Bankruptcy press release in July 2011 underlines the seriousness of breaking insolvency rules.

A bankrupt individual was found to have continued to trade whilst unable to repay his debts, incurring further credit during this period and causing individuals and companies to suffer financial hardship as a result. He acted as a Director when banned from doing, neglected his tax responsibilities and failed to provide accurate information to his Trustee. The outcome of this situation was a Bankruptcy Restriction Order which prohibited the individual from acting as a Director for seven years and restricted his ability to obtain credit in the future.

Similar issues which exist with a Scottish trust deed include failing to report the receipt of windfalls (an inheritance, pay bonus or PPI claim); failing to advise the Trustee of improvements in circumstances; failing to make agreed payments or simply failing to co-operate with the Trustee generally.

What can a Scottish trust deed provider do in such circumstances?

A Trustee may simply decide to resign from the trust deed. Where this happens they will draw their fees to that point from the contributions made to the trust deed and distribute any surplus to the creditors. The debtor will be left with their debts, interest may be added to the debt and they will once more be exposed to debt recovery and legal recovery actions.

A Trustee in more serious circumstances can take steps to recover sums which should have been paid over, even if the funds themselves have been passed on to others.

Where the creditors have lost out as a result of a debtor failing to abide by the terms of their protected trust deed, a Trustee may look to sell any assets which would help to put the situation right. This could place a home or essential vehicle in jeopardy.

Bankruptcy may be one way to force the sale of such assets. A Trustee may seek to bankrupt an individual who has flouted the terms of their trust deed in more serious circumstances. For some people this may cause workplace issues and other problems.

Often sold as an ‘easy way to get out of debt’, it’s important to remember a trust deed is actually a very serious formal legal procedure which places responsibilities on all of the parties. Anyone considering signing a Scottish trust deed would be well advised to take some time to fully understand their responsibilities in this respect. The vast majority of people who sign a trust deed are only too happy to abide by the rules in return for assistance with their debts; however, the minority who seek to bend or evade the rules should consider that the risks almost always will not justify the envisaged benefits.

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