Protected trust deeds for those who cannot sustain their debts would be subject to new measures to confine their use to appropriate cases, under proposals put out to consultation today by the Scottish Government.
The use and operation of PTDs has given rise to some concerns, and the proposals also seek to ensure that the system operates on the basis that a fair balance is struck between the interests of those with unsustainable debts and their creditors.
The paper explains that analysis indicates that a reasonable proportion of those individuals in PTDs could settle their debts in a similar duration as an average DAS (debt arrangement scheme) payment programme. This raises doubt as to whether a PTD is the best option for these individuals, in that granting a PTD brings more stringent consequences as their assets become their trustee's property, including windfalls and inheritance acquired after grant of the deed.
Creditors under DAS also receive a higher percentage of their money back, as evidence has shown a substantial percentage of the contributions made in PTDs are required to cover the administration costs. Stakeholders, particularly from the creditor and the advice sector, have voiced growing discontent over the level of returns to creditors from PTDs relative to the level of contributions made by debtors. Smaller creditors in particular complain that cases in which debtors can both receive debt relief and keep hold of large amounts of equity in a property do not provide a fair balance between the parties.
Ministers are therefore considering introducing legislation to specify that where debts in a trust deed can be paid back in full, considering the contributions being made, in a time frame of 60 months or less – or otherwise within the duration of the trust deed – then the trust deed would not be protected.
Views are also sought on raising the minimum debt level in PTDs from the present £5,000.
Trustees would be required to administer the trust deed for a single fixed fee.
A new voting model for creditors is proposed, more closely aligned to the current creditor voting system involved in the company voluntary arrangements (CVAs) process.
Ministers also want to ensure that the three solutions for personal insolvency (bankruptcy, PTDs and DAS) collectively provide the right range of choice for the individuals concerned. A separate consultation on DAS is currently in progress.
Click here to access the consultation. The deadline for responses is 19 April 2019.