When a debtor is not at all in a position for easy and convenient paying back of loans and interest on it, there is an alternate that he can declare himself as bankrupt. But in Scotland there is even more respectful and effective way out for both debtor and creditor. This way is known by the name of protected trust deeds. Protected trust deeds should not be mistaken for debt management program. While debt management requires a fresh loan for paying debts in a time bound manner apart from some management practices, no such loan is involved in protected trust deeds.



Under protected trust deeds, the debtor's present repaying capacity matters most. The main aim of protected trust deeds is to recover the debts and not to punish the debtors by higher interest rate or by taking him to courts. Since the recovery of loans is the major concern, protected trust deeds are made keeping in mind the present financial position of the debtor. A proposal of convenient repayment plan is sent to all the creditors from the debtor's end. The proposal says that the debtor can pay off a certain amount towards debts in certain period which usually is three years. Usually the amount proposed is way below the total debts. If all the creditors agree on the proposal then it is formed into a trust deed. When the trust deed is registered as protected, it is called protected trust deed.

Protected trust deeds are made with the assistance of a licensed insolvency practitioner who plays the role of a broker between debtor and creditors. In fact licensed insolvency practitioner is crucial to protected trust deeds. The practitioner is not merely an honest broker but sets the conditions that are laid down in the proposal to creditors. He is responsible for arriving at an amount that the debtor can pay easily. To do this the practitioner makes sure that while clearing the debts, the debtor does not suffer from the lack of money. So first of all the practitioner calculates the money the debtor requires for meeting daily expenses. And then whatever amount is left with the debtor, it is taken as the amount for easy and convenient pay off debts. In other words the debts may be higher but still debtor will pay a comparatively lower amount to creditors as he can not afford to pay off the entire debt amount.

So the advantages of protected trust deeds for debtors are many. First of all, the debtor pays fewer amounts to creditors than he actually owes. This means the burden of debts is lighter on his shoulders. He can at the same time have sufficient money at hand for meeting daily expenses. The life despite debts is enjoyable for the debtor. Second major advantage is that once the creditors have signed the deed, they can not take legal action on the debtors. All the debt related queries are handled by the insolvency practitioner. So the debtor is free from any harassment from the creditors. Also, the interest rate on debts is frozen and creditors can not take any fresh interest from the debtor which is a huge advantage. All those debts are written off which are not paid off in the agreed duration.

As far as bad credit of the debtor is concerned, it is not at all an impediment in making a protected trust deed. The debtor is not permitted to borrow any money till the debts are fully cleared. So there bad credit is no problem in protected trust deeds.

Now, here is a word on the chances of success of protected trust deeds. Generally protected trust deeds are done successfully and all parties involved in the deed forming are satisfied. This is because the deed is formed on the basis of taking suggestions from the creditors and keeping the debtor's present financial position in mind. Still, a creditor can withdraw from the deed if he thinks so. But to do so the creditors must have more than 33 percent of the total debts of the debtor. And such a creditor has to file his objections to the trust deed within five weeks of signing trust deed.