Is a Trust Deed Legally Binding?

Yes, a Protected Trust Deed or PTD is lawfully binding to both the debtor and the creditor. It is regulated under the Bankruptcy Act (Scotland) of 1985. A Protected Trust Deed is a formally agreement, an arrangement between the petitioning debtor and their creditors. It is available to any individual living as a resident in Scotland as a method of debt relief and is the Scottish equivalent of the IVA or Individual Voluntary Arrangement available in England and Wales.

The Protected Trust Deed binds both the debtor and the creditor to the terms of their PTD agreement. The Protected status of the Trust Deed ensures that the creditors may not attempt to sequester the debtor. Sequestration is the seizure of property or other assets in order to make remittance for money owed. The debtor for their part signs over control of their assets to a Trustee and agrees to make regularly monthly contributions to the Trust Deed fund, which is then shared out amongst the creditors after a period of (usually) three years. As long as the debtor continues to make those payments on time, then the agreement stands and is protected under the law. However, should the debtor become unable to make consistent payments, then they would be breaking the agreement and the creditors are lawfully able to individually undertake sequestration and even apply for the person to become bankrupt.

If the debtor's circumstances change during the three-year period of the PTD, it is essentially that they inform their Trustee. A change in circumstance such as a windfall like a lottery win or inheritance would need to be shared out amongst the creditors, as this is a new asset that the debtor has within their possession. Failure to inform the Trustee of a change in circumstances may result in the new asset being seized or the Trust Deed being broken and the creditors are again let loose from their lawful restrictions.