Trust Deed versus Bankruptcy in Scotland

Struggling to choose between a Protected Trust Deed and bankruptcy in Scotland? Our comprehensive guide explains the key differences, helping you understand which debt solution might be more suitable for your circumstances.

If you’re struggling with debt in Scotland, you might be wondering whether a Protected Trust Deed or bankruptcy (sequestration) would be the better choice. Both are formal debt solutions that can help you get a fresh financial start, but they work in very different ways.

Understanding the key differences between these two options could help you make an informed decision about which path might be more suitable for your circumstances.

What is a Protected Trust Deed?

A Protected Trust Deed is a voluntary arrangement between you and your creditors. You agree to make monthly payments for a set period (usually four years) based on what you can afford after covering essential living expenses.

During this time, your creditors cannot pursue you for payment, and any remaining debt is typically written off at the end. Your trustee manages the process and distributes payments to your creditors.

What is Bankruptcy (Sequestration) in Scotland?

Sequestration is the Scottish form of bankruptcy. It’s a legal process that can either be voluntary (you apply yourself) or forced upon you by creditors.

In bankruptcy, your assets may be sold to pay creditors, and you’ll typically be discharged after 12 months. However, you may need to make payments for up to four years if you have surplus income.

Key Differences Between Trust Deeds and Bankruptcy

Control Over Your Assets

With a Trust Deed, you usually keep your home and car (provided they’re not worth significantly more than any outstanding finance). Your trustee focuses on your monthly payments rather than selling your possessions.

In bankruptcy, your trustee may sell valuable assets to pay creditors. Your home could be at risk, although there are some protections for modest family homes.

Duration and Discharge

Trust Deeds typically last four years, after which any remaining debt is written off. You’re committed to making payments throughout this period.

Bankruptcy discharge happens after 12 months, but you may still need to make payments for up to four years if you have surplus income above the Common Financial Tool threshold.

Credit Rating Impact

Both solutions will affect your credit rating for six years from the start date. However, some people find it easier to rebuild credit after bankruptcy discharge due to the shorter formal process.

Public Record

Trust Deeds are recorded on the Accountant in Bankruptcy’s public register, but this typically attracts less attention than bankruptcy records.

Bankruptcy is more widely publicised and may appear in local newspapers, which could affect your reputation or employment in certain professions.

Which Option Might Suit You?

A Trust Deed Might Be Better If:

• You have a steady income and can afford regular monthly payments
• You want to keep your home and valuable possessions
• You prefer a more private debt solution
• Your creditors are likely to accept the arrangement (you need 67% by value to agree)

Bankruptcy Might Be More Suitable If:

• You have little or no surplus income after essential expenses
• You don’t own significant assets you’re concerned about losing
• You want the legal protection and quicker discharge that bankruptcy provides
• Your creditors are unlikely to accept a Trust Deed proposal

Getting Professional Advice

Choosing between a Trust Deed and bankruptcy is a significant decision that depends on your unique circumstances. The Accountant in Bankruptcy provides detailed information about both options, but you shouldn’t make this choice alone.

Free debt counselling is available through MoneyHelper, and you can also speak to qualified debt advisers who can assess your situation properly. As AMI Financial Solutions Limited is authorised and regulated by the FCA, we understand the importance of getting the right professional guidance.

Other Debt Solutions to Consider

Before committing to either formal insolvency process, you might want to explore other options like the Debt Arrangement Scheme (DAS) or informal debt management plans.

These alternatives might be more suitable if your debt levels are lower or your financial difficulties are temporary.

Next Steps

If you’re considering either a Trust Deed or bankruptcy, start by getting a clear picture of your finances. List all your debts, income, and essential expenses to understand your true financial position.

Remember, both solutions can provide a path to financial recovery, but the right choice depends on your individual circumstances, assets, and goals.

Have questions about Trust Deeds vs bankruptcy? Our forum community is here to help. Share your situation (anonymously if you prefer) and get support from others who’ve been through similar experiences. Professional advice is always recommended for your specific situation.