How does it work?
Your PTD is dealt with by an insolvency practitioner (IP). They will look at how much you can afford to pay and whether your assets (items of value) will be sold.
They will contact all your creditors about how much you can pay. Your trust deed will become a protected trust deed (PTD) as long as your creditors do not object to it.
All creditor contact will stop once the PTD has been accepted. Interest on the debts will also be stopped and you will be legally protected against further collection action.
A PTD will usually run for four years. Once you have successfully completed the PTD, all the outstanding debt balances included will be written off.
Please be aware:
Your PTD will be shown on your credit file for six years. It will also be kept on the public Register of Insolvencies. You may find it harder to get credit while it shows on your credit file.
If you do not complete your PTD, creditors can backdate interest on your debts. This means they can add all the charges they did not add during your PTD. So, you could owe more than before your PTD started. They could also apply to make you bankrupt.
You will normally have to sell any asset that is worth more than £1,000.
If you own property, any equity you have will be used to pay a lump sum into your PTD. Your IP will talk to you about other ways to do this so that you do not lose your home.
Important information about protected trust deeds
- There are no upfront fees
- You only pay what you can afford every month
- The IP's fees are taken directly from your payment
- This does not affect the time it takes to pay back what you owe. The rest of your debts will normally be written off when you finish the PTD
- Once your PTD is set up, your IP deals with your creditors for you
- A PTD will normally take a few weeks to set up
What are the benefits of a PTD?
- You pay a single monthly amount. This is based on what you can afford
- Interest, charges and debt collection will stop. This happens when your PTD is accepted
- A PTD works for most of your non-priority or unsecured debts. Some debts are excluded. Like student loans and fines
- Once you make your final payment, the rest of your debts are written off
What are the risks of a PTD?
- Your PTD will be kept on the public Register of Insolvencies for at least five years. It is also shown on your credit file for six years. You may find it harder to get credit as a result
- Your IP will decide if any assets (items of value) will need to be sold
- If you do not finish your PTD, you will not have any debts written off. Creditors may then backdate interest on your debts. This means they could add all the charges that they did not add during your PTD. They could also apply to make you bankrupt
- If you are a homeowner, you will normally be expected to pay some, or all, of your equity towards your debts. Your IP will discuss the options with you
- You may have to sell any asset if it is worth over £1,000. Like a vehicle
- Items on hire purchase agreements may be affected by the PTD. You may have to return them
You must not:
- Hide assets (items of value)
- Break the terms of your PTD
If you break the terms of the PTD it will fail. This means that you will need to pay back all your debts. This includes any interest and charges. Your creditors or your IP could also apply to make you bankrupt.
Your PTD could be extended
Your PTD will usually run for four years. But it can last longer if:
- You own a home with equity in it and do not remortgage within four years
- You take a payment break during your PTD
Your PTD will be kept on a public register
Your PTD will be put on the Register of Insolvencies. This is available online for anyone to view and will stay on there for one year after the PTD has finished.
Your name and address will be on the register. Make sure you speak to your IP if you feel you could be at risk.
What types of debt are included in a PTD?
- Most unsecured debts will be included in your PTD. Your IP will discuss this with you
- You need to keep up with your priority payments, such as regular household bills
- If you have overdue, missed payments (arrears) on your household bills, your IP may include them in the PTD
Protected trust deeds and joint or guaranteed debts
Before your PTD starts, make the other person on the agreement aware of your plans. This is because you will no longer have to repay the debt.
However, the full debt will still need to be paid back by anyone else named on the agreement or by the guarantor.
They will need to pay the full regular monthly payments and deal with any payments you or they are behind on.
Creditors could take action against them if payments are not made up. It may affect the other person's credit file.
Protected trust deeds and family and friends loans
If you owe money to friends or family, let them know that you will not be able to pay them back.
You will not be able to make payments to them after you have started your PTD. This cannot be included in your PTD.
Protected trust deed and fraudulent debt
A PTD will not write off any debts you got fraudulently. Like a debt from benefit fraud.
Your creditors may still get in touch about these. You will have to pay back what you owe.
Protected trust deeds and your assets
The value of your assets will be checked. The IP will then decide if they need to be sold. Any funds raised from the sale will be used to reduce the amount you owe to your creditors.
Some things you own cannot be sold. These are things like clothes, bedding, household appliances and children’s toys.
If there are items you need to keep, you can talk to your IP.
Protected trust deeds if you rent your home
You should check your rental agreement before you apply.
If you are including rent arrears in your PTD, your landlord will be told about it. If you are not, then they will not be told about your PTD.
However, your PTD will be put on the public Register of Insolvencies and it will show on your credit file for six years.
Some rental agreements have a clause about trust deeds or insolvency.
These can give the landlord the right to:
- End the agreement
- Refuse to renew or carry on your tenancy
A PTD can also make it harder to get a tenancy in the future.
Protected trust deeds if you own your home
If you own your home, any equity you have will be used to pay into your PTD. Equity is the value of what you own in the property.
This will be paid as a lump sum (one large payment) to your PTD.
Your IP will go through your options before you go ahead. The options may mean that you do not have to lose your home or remortgage your home.
PTD and hire purchases, leases and conditional sale agreements
You may not be able to keep items being paid through monthly instalments. These are things like lease hire, hire purchase or conditional sale agreements.
In these cases:
- The lender may end the agreement as you are insolvent
- The IP may tell you that you are paying too much towards your agreement
- The IP may tell you the item is not essential
If you are unsure how a PTD will affect this, read the agreement or contact the lender for more help.
Get more information about hire purchase agreements.
Protected trust deeds and your vehicle
Your IP will look at the value of your vehicle and whether it is essential for your everyday living. They may look at your access to public transport.
They may decide to sell your vehicle. This is more likely if it is worth more than £3,000 or not essential.
There may be fees and costs to the IP for selling your vehicle. These will be taken from any money raised from the sale. The rest will be shared among your creditors. This will reduce the amount you owe.
Protected trust deeds and your job
There are some positions you cannot hold when you are in a PTD.
This is often when you are in control of other people’s money. Things like solicitors and many roles in financial services.
Before you go ahead, find out if there are any risks to your role. You can do this by:
- Checking the terms and conditions of your employment contract
- Speak to your employer, trade union or professional body
Protected trust deeds and your pension
You may be thinking about taking money from a pension in future.
Money you have saved in pensions is not seen as an asset. This only applies to regulated pensions and approved pension schemes. These will not affect your PTD.
However, any money you get as an income or a lump sum may be affected. The trustee could claim the money and pay it to your creditors. This is the case while your PTD is active.
Find out how your pensions could be affected by contacting:
- Your pension provider
- Pension Wise. They are a free and impartial service
- A regulated independent financial advisor (IFA)
During a PTD you are normally able to continue paying into a pension. But you may need to reduce the amount you pay.
What happens if your circumstances change?
You will need to let your IP know. They will look at your income and spending again to see what you can pay towards your debts. They will then tell you about your options.
Small changes that affect the amount you can afford should not cause any problems. However, if the amount you have available to pay back what you owe reduces, your IP may need to speak to your creditors. They will need to approve a change.
Separating your debts from your banking
It is a good idea to open a 'basic' bank account for your day-to-day banking. You may be able to stay with your current bank if they are happy to give you a basic bank account. You can apply for a basic account with another bank if not.
Find out more about basic bank accounts.