Hi pbiggins04 and welcome to the forum,

A Trust Deed works on the basis that the Trustee must establish what the current level of equity is. They will do this by carrying out a valuation of your house.

I'm not aware of anything that has recently changed. Can you tell me what the value of your house is, what your mortgage balance is and also your total debt levels.

Also, what is the agreement that you have made with the Trustee regarding your equity. The most important thing is to ensure that you receive absolutely everything in writing. It sounds like you might have been told one thing on the phone and another in the paperwork. Well done for picking this up and questioning it.

Finally have you actually sat down with an advisor in person to discuss all of this? We would always suggest sitting down with a qualified expert to work through your circumstances and to review all of the paperwork. It's also a good idea to seek a second opinion from an expert as things can vary slightly from firm to firm.

Welcome to the forum Pbiggins04.

I think this 85% thing has been based upon some firms copying what happens with IVAs in the rest of the UK.

Not sure anything has changed in respect of this with the rules in general; probably just a change of the rules used within this firm.

Hi Pat, the notes for guidance for trustees state that a property valuation should be obtained by a qualified surveyor and 'should be specified as the current Royal Institution of Chartered Surveyors (RICS) Red Book equivalent of ''Open Market" and not impose other restrictions such as a forced sale or the sale price expected for a transaction concluded within a truncated period''

It also goes on to say that 'It is important to recognise that 100% of the assets are conveyed to the trustee in a trust deed. This means that 100% of the difference between valuation and security needs to be shown in the debtor's statement of affairs. Any differences between the full equity figure recorded in the statement of affairs and the amount that is expected to be realised, as recorded on the Form 1B, must be fully explained. '

So yes, it is correct that the value used should be 100% of the full market value. However these notes for guidance were issued in April 2015 and therefore have been in place for almost a year.

Please be very wary of anyone who does not know or understand them and likewise anyone who tells you that equity in a property can be ignored simply by paying an extra year of contributions.

Hope that helps you?

Hi GayleC,

Thank you for taking the time to share this useful information for pat.

It's quite common in Trust Deed's at the moment whereby the Trustee will set out the full market valuation of the property to creditors but also explain what the forced sale valuation is and what the Trustee expects to realise from the property in terms of equity.

As long as apparent insolvency can be demonstrated and in laymans terms the equity is less than the debts then we are a firm which will consider a Trust Deed whereby we may not receive the full amount of equity but a proportion of this by extending the Trust Deed for 12 months at the end of 4 years. Ultimately a Trust Deed is a proposal to creditors which can be accepted/rejected by them. If creditors accept the proposal then they are happy with the realisations and terms.

Before we decided to consider this approach to the equity we ran the equity write off scenario and 1 year extension past our authorising body and also John Cook, the Accountant in Bankruptcy and both confirmed that they had no problems with this type of Trust Deed as it's effectively up to the creditors. We are the number 1 provider of Insolvency Services to the Accountant in Bankruptcy so wanted to be sure there would not be a problem with our approach.

I would be wary of dealing with a person that doesn't know this position but in terms of a Trust Deed whereby it writes off equity I wouldn't rule this out as a suitable option depending on that persons circumstances. Obviously if circumstances change for that client during the term of the Trust Deed then it can impact their property and put it at risk and this is why it's vital to discuss all of this with a client.

Have you had a negative experience regarding this type of Trust Deed and equity write off?

David, with the approach you've outlined, let's say someone had £60,000 of debt, can afford to pay £200 per month at the very most to their debts and has £30,000 of equity in their house (in their own name). Would you suggest that they sign a trust deed, pay £200 per month for five years (so £12000 in total) and then that would be it - rest of debt written off and no impact on the house?

(I have a friend who is in this exact position, so your advice would be very relevant)

Hi GayleC,

Sure happy to provide a little clarity and confirmation on my post.

Based on the information you have supplied then yes, we would advise the client that a Trust Deed could be one of the solutions available to help them deal with their debts.

Based on the recent statistics released by the Accountant in Bankruptcy in their consultation paper for Trust Deeds, since 2013 there have been 9,040 Trust Deeds protected. From this, 2,406 had heritable property. Of this number, 2,126 had an average of £10,000 equity and in 1,680 cases an average of £1,680 was realised for the benefit of creditors.

Also, across all PTD's granted in that period, there were 563 cases whereby the amount of available equity was greater than the total debts due to ordinary creditors.

In the 532 cases the average amount of equity was £43,016 and out of that, in 495 cases the proposed sum that would be realised for the benefit of creditors is £1,848.

Now from this information it supports what I have said in terms of people being able to consider a Trust Deed as an option to deal with their debts within a 5 year timescale rather than 10+ years on a DAS. Over 500 people have entered into a Trust Deed with equity more than the debts.

I believe that a client need to be aware of all of their options along with the pros and cons of each option and then they can decide which option they would like to proceed with.

If we take your friend for example, if they entered a DAS, it would be 25 years repaying £60,000. If they entered a Trust Deed it could be 5 years paying back a total of £12,000. A difference of 20 years and £48,000. In your friends case they would pay £2,400 towards the equity of £30,000 which is above the average sum quoted in the AIB statistics.

Until this report was released I wasn't aware that there were that many Trust Deed's with that level of equity. I assumed it was a handful. Our main test is for this is for the client to be apparently insolvent and if they are then we will consider this approach. We will explore all of their options such as a Full & Final Settlement, re-mortgage or secured loan, DAS, Trust Deed, Sequestration and also financial restructure and budgeting. We then allow the client to decide.

The obvious downside to being equity rich in a Trust Deed is if a client's circumstances change during the Trust Deed and they cannot make the agreed payments then the property is going to be at significant risk. This should be made clear to the client and it's then up to them to decide. If as an advisor I can help someone keep their house, repay an acceptable amount to creditors and not have something hanging over them for the 10 or even 20+ years then I think that is a very good outcome.

Thanks David. Can you explain your last paragraph? When you say the property is going to be at significant risk, does that mean if the person can't make the agreed payments then your company will sell their house?

Hi GayleC,

Yes, if the client is not able to fulfil the Trust Deed agreement then the property could be put at risk of being sold. Not just by my company but by any Trustee dealing with the case.

In Trust Deed's now there is a statutory form called ÔÇ£Agreement in respect of heritable propertyÔÇØ Form 1B. This agreement is quite specific in terms of the equity, the agreement and also the risk.

This is a copy and paste of how the form looks:

Form 1B Regulation 15(2)

Agreement in respect of heritable property

The Protected Trust Deeds (Scotland) Regulations 2013

PTD Reference number:

Debtor's name: JOE BLOGGS

Address of property: 123 JOHN SMITH STREET

Trustee's name: Donald McKinnon

Trustee's Address: Wylie & Bisset LLP, 168 Bath Street, Glasgow, G2 4TP

I Donald McKinnon agree that, on payment of the amount of £2,400 by 1 May 2021, I will:

ÔÇó not realise the property at 123 JOHN SMITH STREET which is owned, or part owned, by JOE BLOGGS which has been conveyed to me under the terms of the trust deed granted by JOE BLOGGS, and
ÔÇó relinquish my interest in this property.

Signed (Trustee): Date:

Signed (Witness): Date:

Name and status of Witness:

I, JOE BLOGGS agree to pay my trustee Donald McKinnon the sum of £2,400 as full payment to relinquish the trustee's interest in my property at 123 JOHN SMITH STREET. I agree that the total amount of £2,400 will be paid as follows:

Extending the duration of the Trust Deed to pay an additional twelve payments of £200.

I understand that if I fail to comply with these agreed terms for payment of £2,400 by 1 May 2021 my trustee may withdraw from this agreement and my property may be sold [and I may not receive my discharge from my trust deed].

Signature (debtor): Date:

Signed (Witness): Date:

Name and status of Witness:

As you can see GayleC it's quite specific and requires both the signature of the Trustee, the debtor and a witness.

As long as someone speaks with a good advisor who then explains all of the options, pros and cons then as I said it's up to the client to decide.