Scotland Trust Deeds – State of play 2018
Scottish Trust Deed examines the latest AiB (Accountant In Bankruptcy) data to explore the current state of debt in Scotland, and asks what the stats say about whether trust deeds really work.
Which Scots make most use of trust deeds?
Trust deeds in Scotland are fast becoming the debt solution of choice for people who are struggling with their debts and want to avoid bankruptcy.
Our new interactive map uses data from the AiB to show the country’s most popular hotspots for the trust deed debt solution.
Simply click on an area on the map to see how many people took out a Scottish trust deed in 2018.
What does the map tell us?
As you might expect, Glasgow and Edinburgh are the dominant centres for Scottish trust deeds, with Aberdeen third. That’s hardly surprising as those cities have the greatest populations.
But what the broader map demonstrates is just how widespread the trust deed solution is. Every part of Scotland is taking advantage of the scheme. Whether you’re on the Scottish Borders, the Orkneys or the Western Isles, a trust deed could be a debt solution for you.
What is a trust deed?
A protected trust deed is one option available to residents in Scotland when debt becomes unmanageable. It is a formal agreement administered by the AiB in which you agree to meet your obligations (including paying your creditors an agreed amount) and in return, after four years have elapsed, you will be released from any remaining debt.
Find out more about how a protected trust deed works and explore whether it could be the right solution for you.
A growing solution
In 2017-18 (the latest figures available) the AiB registered 5,958 protected trust deeds. That represents an 8.9% increase on the previous year, but remains well below the 9,188 reached in 2009-10, at the peak of the financial crash.
Yet as the data from the intervening years shows, once the effects of the crash dissipated the trend has once more been upwards, with increases in protected trust deed registrations in every one of the past four years. Registrations of trust deeds now outnumber awards of bankruptcy.
|2013 -14||2014 -15||2015 -16||2016 -17||2017 – 18|
|Protected trust deeds registered||6681||4437||4709||5470||5958|
- It would be wrong to describe the increase in numbers as a measure of trust deeds’ ‘popularity’. Nobody wants to find themselves in unmanageable debt, and solutions such as trust deeds are only ever seen as emergency measures.
Yet a trust deed is not the only solution available to Scots, so the fact that more people are choosing them than the alternatives clearly indicates that that a trust deed offers something different to the traditional routes of overcoming debt.
A successful solution
Most debt services sites offer information about your options – but few look further down the line. It’s one thing to commit to a four year debt management plan (as is the case with a trust deed) but four years later, does it work?
In 2017-18, 7,283 protected trust deeds were concluded, a lower figure than the previous year but this reflects the higher numbers of trust deeds which were being registered four years ago.
Not every trust deed is discharged successfully, but the AiB data shows that creditors received dividends in 71% of cases, and they wouldn’t receive a dividend unless the trust deed had reached a successful conclusion.
When someone fails to meet their obligations under a trust deed, one of the options open to your trustee is to petition for your bankruptcy. It is a further measure of the success of trust deeds that in 2017-18, that happened on just four occasions.
- What do these stats show? For the majority of people who choose a trust deed, it’s not just a solution that works at the point of registration. It may give immediate relief from debtors and respite from the damaging personal effects of debt, but four years later, the stats show that most trust deeds do the job required of them and help people escape debt for the longer term.
A swift solution
A trust deed is a formal, legal solution so you might not expect it to be completed swiftly. The entire process takes around seven weeks because notice of the deed is placed on the Register of Insolvencies and creditors are given five weeks to object.
But, notice period aside, the AiB’s data shows that trust deeds can be set up surprisingly swiftly – and ahead of the AiB’s own targets.
In 2017-18 it took just 1.7 days for submission forms to be protected or rejected by the AiB (against a target of 2 days) and then just 4 days after the end of an objection period for full protection or rejection of the deed (against a target of 10 days).
- Debt is worrying without the additional pressure of delays in the administration of a trust deed, so it’s heartening to see that the AiB is operating ahead of its own published targets. There is no alternative to the notice period – creditors deserve to be informed and have the right to object – but it’s worth remembering that an objection doesn’t necessarily stop your deed from being approved.
Unless your trust deed receives objections from more than half of your creditors (or from creditors representing more than one third of the total value of the debt) it will be protected.
Bankruptcy (Sequestration) vs Trust deeds in Scotland
A trust deed in Scotland isn’t the only option for Scots facing unmanageable debt. Debt payment plans, management plans or consolidation loans are some of the (lesser known) alternatives which may be appropriate depending on your circumstances, but the other option that everyone has some understanding of is bankruptcy.
Also known as sequestration in Scotland, bankruptcy is a legal declaration that you cannot pay your debts. An award of bankruptcy means control of any assets passes to a trustee who may sell those assets on to pay money owed to creditors.
There are several categories of bankruptcy, including applications made by trustees (where a trust deed fails) and creditors, but the form of bankruptcy that you can choose to take (as opposed to having it forced upon you) is a debtor application.
Of those, 1,844 followed the Minimal Asset Process (MAP), a cheaper and simpler form of bankruptcy designed for people who, as the name suggests, have limited assets that take a trustee less time to deal with. MAP is the typical process where assets are worth less than £2,000 (excluding a car worth £3,000 or less) and total debts of less than £17,000.
As with trust deeds, bankruptcies in Scotland peaked during the years of the financial crash, before falling back to their lowest levels in 2015-16. Since then, they have again started to rise but remain below the levels of trust deeds. Compared with debtor applications (and particularly MAP applications), they are significantly below.
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|Trust deed petitions||44||14||2||6||4|
Why are more Scots choosing trust deeds rather than bankruptcy? The two are similar, and both have the same aim and outcome – leaving you debt free. But there are some important differences that are driving more Scots to choose trust deeds over sequestration:
- Jobs: Sequestration can affect your career in more ways than a trust deed. If you are declared bankrupt, you cannot hold any official position, be a member of your local authority or government and you cannot be a company director. Whilst there are some job restrictions in respect of trust deeds, they are fewer than for bankruptcy.
- Ability to pay: With bankruptcy, you have to show that you are unable to pay your bills as they become due. There isn’t the same requirement with trust deeds, making them a broader and more flexible solution.
- Credit: You won’t be able to obtain more than £500 in credit during the 12 months until your bankruptcy is discharged, unless you tell the lender you are bankrupt. There is no such formal restriction on a trust deed. In practice, of course, you’ll probably be wanting to avoid credit – and lenders are unlikely to lend at preferential rates anyway.
- Stigma: There is no getting away from it, bankruptcy still carries a social stigma that other debt solutions do not. In 2010, The Wall Street Journal reported that more than 25% of employers would not offer a job to someone who was bankrupt. Fewer than half that number felt the same way about foreclosure.It seems that stigma isn’t felt by everyone. In the US, bankruptcies are rising faster amongst millennials than any other age group, suggesting a generation less worried about the effects of bankruptcy.Stigma shouldn’t be a reason to avoid sequestration if it’s the right choice for you. But as trust deeds present similar (and arguably more) benefits than bankruptcy, it’s a way of escaping debt without having to face the ‘B’ word.
- Duration: Finally, one commonly cited advantage of bankruptcy is that it’s a quick fix. A trust deed lasts four years and will affect your credit rating for six. The headline duration of bankruptcy is one year – that’s how long you will be ‘declared bankrupt’ for. But the reality is that, if you have any ability to pay back creditors, you will likely make payments over the same period as a trust deed and your credit rating will be affected for the same period.
Scotland’s Trust Deed debt solution
Last year, almost 6,000 Scots started their escape from debt using a Scottish Trust Deed. Once four years have elapsed, the data shows that most of them will successfully have written off the debt that led to the deed in the first place.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here