The Truth About Protected Trust Deeds
Let’s debunk a few myths about Protected Trust Deeds (PTDs) and it’s important that we do.
They are not a free ride to get rid of debt and stop your creditors in their tracks. They come with consequences that too few consider – or worse still are even told about – when they go down that route.
What is a Protected Trust Deed?
In its simplest form a PTD is a voluntary agreement between you and the people you owe money to. You agree to pay a regular amount towards your debts and at the end of a fixed time the rest of your debts will be written off. In that period your creditors can’t chase you for they are owed or add interest and charges. What’s not to like?
Modern society dictates that we all want quick answers and solutions to everything and that includes debt. The red flag with that however is that knee-jerk reactions to clearing debt often come with the wrong solutions. One of the most distressing aspects of PTDs is the number of young people getting sucked into the system as well and we see too many such cases across our desks at Capital. At its worst we were seeing one PTD case a week and most of those we could have helped without resorting to this damaging solution.
To be blunt, your credit rating will be severely affected if you take out a PTD and you will find it extremely difficult if not impossible to take out loans for six years to come. Thereafter, your opportunity for borrowing will still be affected: some lenders will simply consider you too risky to lend to, whilst others might allow you to secure credit but at a very heavy price tag because of your track record.
And if you believe that your creditors will get their money back under this arrangement then think again. The latest stats from Scotland’s insolvency service, the Accountant in Bankruptcy, shows that the mean dividend paid to creditors was a measly 14.2 pence in the pound.
The key question is what happens to the rest of the money you are repaying and the answer to that is that it goes on fees to professional advisers such as insolvency practitioners. Too many people are seduced by clever advertising suggesting that PTDs are the cure for all personal financial problems.
Disadvantages of signing a PTD
Protected Trust Deeds usually last for four years, but can sometimes be extended depending on the specifics of the case and if there is a property involved.
- To be eligible for PTDs you would have £5,000 or more of unaffordable, unsecured debt, owed to at least two creditors. A creditor is anyone you owe money to, in an unsecured arrangement. E.g. credit cards, bank loans and catalogues. You would be resident in Scotland and be able to afford a monthly contribution towards your debts.
- However some debts are excluded such as Court fines, Maintenance, Child Support payments, Student Loans, and Social Fund loans.
- PTDs have a negative impact on your credit score – which can take some time to rebuild.
- Obtaining further credit once your plan has ended can be challenging.
- If you are a homeowner, you may be expected to release equity to put towards the Protected Trust Deed. If you are unable to realise the equity, then your PTD can be extended and you would have to continue paying in until the amount of equity is repaid.
- If you fail to maintain your agreed contributions, then your Trustee can hand you back to your creditors. This would mean that creditors can proceed to chase you for any outstanding debt due. The other option would be for the Trustee to petition to make you Bankrupt and any contributions you have paid in would most likely be taken as fees.
- Once an agreed monthly contribution is established not all the funds paid in go to paying your creditors. What they fail to advise you are the costs/fees that are taken from your contribution, which include:
- Trustee Fee fixed £2,500.
- Realisation of contributions (20% of the total amount).
- Realisation of Assets (up to 20% of total value depending on the asset).
- Trustee expenses and cost (various about £900 to £1,500).
Once all these amounts have been deducted any funds – usually less than 15% – that are left are divided between the amount owed to creditors and are paid out as a dividend.
Therefore, if you enter a Protected Trust Deed while borrowing from our credit union then it is your fellow members’ money, and our community as a whole, that you’re are putting at risk and financially impacting.
That said PTDs are, as a last resort, the right debt solution for some for whom debt has completely spiralled out of control. However, at Capital Credit Union we tragically come across so many cases where we could easily have helped our members to stop them going down this potentially damaging route.
Contacting us means you are dealing with people whose sole purpose is to help you out of your debt problems not to generate fees. Communication at the outset will help ease the stress that financial worries cause.
Credit unions are all about people helping people and it is never more relevant than when money worries strike. For a confidential chat with our team of experts about how we can help you please contact us at email@example.com
Alternatives to Protected Trust Deeds