If you are pregnant and have a protected trust deed in place, changes can be made to the repayments to creditors. Iain Penman, a senior associate at Brodies LLP, explains what happens to a protected trust deed during pregnancy.

What is a protected trust deed?

A trust deed is a formal, voluntary arrangement made by an individual with their creditors (persons who are owed money) for the repayment of their debts over a period. While trust deeds can be both protected and unprotected, the unprotected form is effectively no longer in use.

PTDs are governed by the Bankruptcy (Scotland) Act 2016 (the Bankruptcy Act) and The Protected Trust Deeds (Forms) (Scotland) Regulations 2016. The protection referred to in the name relates to the fact that once in place, a PTD binds all a debtor's creditors and prevents creditors taking action against the debtor whilst the PTD runs.

Protected trust deeds (PTDs) in Scotland are similar to individual voluntary arrangements (IVAs) in England and Wales. They work on the same principles of sequestration (bankruptcy), but there are certain significant differences.

Key features of PTDs include:

• They are only for debts of more than £5,000.
• They are formed by the debtor signing a contractual agreement with their trustee. The PTD will be granted for the benefit of the debtor's creditors and the repayment of their debt.
• They place the debtor's assets and financial affairs in the hands of a trustee. The trustee must be a qualified Insolvency Practitioner.
• They usually include a debtor's heritable property, however property can be excluded in certain circumstances, for example where property is in negative equity.
• They will become protected where fewer than 50% of creditors, or no more than one third of creditors in value, object to its creation.
• They normally require a contribution from income by the debtor for four years.
• They prevent creditors from taking action against debtors.

On entering a PTD, the debtor must give the trustee details of their income and expenditure. If the debtor has excess income, they are required to contribute, which is used to pay to creditors.

Any contribution from income is calculated by the trustee with reference to what is known as the ‘common financial tool’, a method of income assessment with its basis in the Bankruptcy Act. Any excess income above necessary expenditure is likely to be passed to the trustee as a contribution from income.

Can protected trust deed payments be suspended during maternity leave?

Yes, protected trust deed payments can be suspended during maternity leave. The level of a debtor's contribution from income can be varied up or down if their circumstances change, and the period of contributions can be extended or shortened. If an expectant mother finds her income is reduced during maternity leave, she can ask to change her contributions.

What happens to protected trust deed payments when you return to work after giving birth?

When a mother returns to work after giving birth, a re-assessment of income contribution should be carried out to make sure that any change in circumstances, such as a reduction in income due to part-time working or the increase in expenditure related to having a baby, can be considered.

If the mother does not return to work after giving birth, again a re-assessment of income contribution should be carried out to reflect the change in circumstances.

Can you cancel a protected trust deed?

It should be noted, however, that you cannot simply cancel a PTD – there are prescribed routes to exit. The normal route to exit from a PTD is by completing the term successfully. Completion discharges you from all your debts, as at the point you entered the PTD (subject to limited restrictions).

If you come into funds that are sufficient to pay your creditors, these would be applied to your debt and the trust deed could be ended based on the creditors being paid in full.

If you do not cooperate with the trustee, for example by failing to tell them that you have received some money, they are likely to end the trust deed by sequestrating you to recover the money.

Summary

If you are having difficulty paying your debts, then take professional advice as soon as possible. A wide range of options are available, and providers offer both paid-for and free advice. It’s important that whoever you talk to is an accredited money advisor (MA).

PTDs are just one of the forms of debt relief available in Scotland and an MA will be able to give you information on the best way forward for your individual circumstances. You may be eligible for a moratorium, which prevents creditors from taking action against you while you take advice and choose a debt relief option.

About the author

Iain Penman is a senior associate at Brodies LLP, specialising in restructuring and insolvency.

See also

What you need to know about protected trust deeds in Scotland

Scottish insolvency vs England and Wales - What you need to know

A brief guide to sequestration in Scotland

Find out more

Bankruptcy (Scotland) Act 2016 (Legislation)

The Protected Trust Deeds (Forms) (Scotland) Regulations 2016 (Legislation)

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Publication date

21 February 2022

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.