Protected Trust Deed or Sequestration: Scottish Debt Solutions Compared

If you live in Scotland and cannot repay what you owe, two formal solutions can write off debt: a protected trust deed and sequestration, which is the Scottish form of bankruptcy¹. Both are managed by a trustee, both stop interest and charges, and both have different benefits, risks and fees². A protected trust deed is a voluntary agreement with the people you owe money to, to repay what is owed over an extended period³. Sequestration is Scottish bankruptcy⁴.

The choice between them is not simply which is cheaper. A trust deed is a formal agreement with your creditors, and it becomes protected once enough of them agree not to oppose it³. Sequestration is a court-awarded status, though where you apply yourself you will not have to go to court: StepChange will manage and send your application for you⁵. Both carry restrictions on what you can do while they run, and both affect your credit record for years.

Before choosing either, free advice is available. StepChange Scotland states it is an approved organisation for providing advice and managing Scottish debt solutions, and that it is trusted and authorised to help arrange trust deeds⁵. Its advice is free, and getting advice will not affect your credit file or impact your credit score⁶.

Scottish debt solutions: where a trust deed and sequestration fit

Scotland has its own insolvency framework, separate from England, Wales and Northern Ireland. The formal options include sequestration (Scottish bankruptcy), a protected trust deed, and the minimal assets process (MAP) bankruptcy¹. The Accountant in Bankruptcy, Scotland's insolvency service, describes the wider set as an informal agreement, the Debt Arrangement Scheme (DAS), a protected trust deed or bankruptcy³.

A protected trust deed is a legal way to help you pay back some or all of your debts⁸. It is a voluntary agreement, not a court order, and it is governed by section 167(3) of the Bankruptcy (Scotland) Act 2016⁹. Once protected, creditors cannot add interest and charges to your debts, and they cannot take further action such as court action while you are on a trust deed⁴. If diligence has not started, no further enforcement action can be taken⁴.

Sequestration is the Scottish form of bankruptcy¹. Like a trust deed, it is managed by a trustee¹⁰. Where you apply yourself, you will not have to go to court, because StepChange will manage and send your application for you⁵. The date of sequestration, where a debtor application is made, is the date on which sequestration is awarded¹¹.

The two routes sit alongside the Debt Arrangement Scheme, which is a debt payment programme rather than an insolvency. A person in an approved debt payment programme may not enter into a trust deed for a creditor under the Bankruptcy (Scotland) Act 1985¹². A creditor is also not entitled to found on any debt owed by such a debtor in presenting, or concurring in the presentation of, a petition for the sequestration of the debtor's estate¹³. In other words, DAS shields you from both routes while it runs.

Free advice before you choose: StepChange's Scotland team

StepChange Scotland is an organisation that is trusted and authorised to help arrange trust deeds⁴. It describes itself as an approved organisation for providing advice and managing Scottish debt solutions⁵, and as approved money advisers in Scotland¹⁴. That matters because the choice between a trust deed and sequestration turns on your income, your assets, your home and your job, not on which sounds less severe.

The charity has been helping people for over 30 years¹⁵, and says it has helped more than seven million people since 1993¹⁶. Its advice is free and impartial¹⁷. It offers free, flexible debt advice based on a comprehensive assessment of your situation, and provides practical help and support for however long it is needed¹⁸.

Where a trust deed is right for you and you choose to go ahead, you will need to choose an insolvency practitioner to be your trustee, who puts together and submits the application⁴. For sequestration, StepChange manages and sends the application for you, and you will not have to go to court⁵.

One legal requirement applies to sequestration applications by a living debtor: an application may not be made unless the debtor has obtained advice from a money adviser on the debtor's financial circumstances, the effect of the proposed sequestration, the preparation of the application, and other prescribed matters¹⁹. Advice is therefore not optional before sequestration; it is a condition of applying.

How a debt management plan compares

A debt management plan is an informal agreement, not an insolvency²¹. It is available across the UK, and StepChange offers free debt management plans²². It works in a similar way to reduced payments but the charity does all the work, and it is sometimes a better solution than reduced payments²³.

The limits matter. A debt management plan can only be used to pay unsecured debts, for example money you owe that has not been guaranteed against your property²⁴. Mortgages and other secured debts are not covered by a debt management plan²⁴. In Northern Ireland guidance, money owed under a criminal confiscation order is also excluded²⁵.

A debt management plan does not write off debt. It reschedules it. A trust deed and sequestration are both routes to paying back some or all of what is owed, and in the case of sequestration, to a discharge. That is the central difference: a DMP is a repayment plan you can stop, while a trust deed and sequestration are formal statuses with legal consequences.

If you are in an approved debt payment programme under the Debt Arrangement Scheme, StepChange will in most cases only support programmes with a term of less than 20 years¹⁴. That is a practical limit worth knowing before you commit to a long DAS term.

What getting advice costs: nothing

StepChange does not charge for advice, but payments are made to your trustee or insolvency practitioner once your trust deed is in progress⁴. There are no set fees for a trust deed, and it is up to the trustee to decide what is charged⁴. Trustee fees are deducted from your monthly payments, so there are no upfront fees⁴.

For sequestration, the fee can be reduced to £0 depending on your financial situation or if you receive certain benefits⁵. That is a significant difference from a trust deed, where the cost depends on what the trustee sets.

The Financial Services Compensation Scheme does not cover debt advice itself; its debt management page lists debt advice among the things outside its scope²⁶. What is covered is money held by StepChange: while it holds your money, it is covered by the Financial Services Compensation Scheme, so you can get compensation if StepChange is unable to meet its financial obligations²⁷.

Getting advice does not affect your credit file

Getting advice will not affect your credit file or impact your credit score⁶. Debt advice does not impact your credit file or credit score¹⁴. The Financial Ombudsman Service says the same: discussing your options with your lender won't have any impact on your credit file²⁸. That holds where you contact your lender about difficulty while you are up to date with payments²⁹.

What does affect your credit file is entering a formal solution. A trust deed and sequestration are both recorded, and the trustee must warn you that a trust deed may result in refusal of credit and the deed becoming public information²⁰. That warning is a legal requirement, not a sales tactic.

The practical point is that asking questions is free of credit consequences. You can use the online debt help tool, speak to an adviser, and get a full picture of your options before anything is recorded. You will get a reference number to show your creditors that you are seeking help³⁰.

How to get help: online, phone and BSL access

StepChange's online debt advice is available 24 hours a day¹⁵, and the charity describes itself as here for you online 24/7¹⁷. Its online advice tool is free and confidential³¹. You can start online and switch to the phone if you prefer¹⁷.

The helpline number is 0800 138 1111⁷. Opening times are 8am to 8pm, Monday to Friday, and 9am to 2pm on Saturday⁷. StepChange offers free and confidential debt advice online and over the phone, and can refer you to a fellow debt advice charity if face-to-face advice is best¹⁵.

For a trust deed, the process runs through an insolvency practitioner: use the online debt help tool, then choose an insolvency practitioner to be your trustee, who puts together and submits the application⁴. For sequestration, StepChange manages and sends the application, and you will not have to go to court⁵.

Who StepChange cannot help

StepChange states it is not able to help self-employed people, cannot offer face-to-face debt advice, and cannot help people in the Republic of Ireland³¹. It also cannot advise on actions creditors could take outside the UK, and cannot recommend agencies outside the UK³².

There are also limits built into the Scottish rules themselves. A debtor must not be a person in respect of whom sequestration has been granted, an individual subject to an approved debt payment programme under the Debt Arrangement Scheme, or an entity referred to in section 6(2) of the Act²⁰. Sequestration is not competent for a company registered under the Companies Act 2006, a limited liability partnership, or any other entity where an enactment provides that sequestration is incompetent³³. The sequestrable entities include a trust in respect of debts incurred by it, a partnership including a dissolved partnership, a body corporate, an unincorporated body, and a limited partnership within the meaning of the Limited Partnerships Act 1907³⁴.

Where a debtor with an unprotected trust deed is in an approved programme, the effect on the trust deed is as if an award of sequestration of the debtor's estate on a debtor application had been granted as at the date of approval of the programme³⁵. That is a technical consequence worth raising with an adviser if you are already in a programme.

If StepChange cannot help, other organisations across the UK can³¹. Local money advice services and other debt advice charities are the usual alternatives, and face-to-face help is often available through them.

Protection for money you pay in

While you are on a trust deed, your creditors cannot add interest and charges to your debts, and they cannot take further action such as court action⁴. If diligence has not started, no further enforcement action can be taken⁴. A trust deed or debt payment plan in Scotland stops interest and charges³.

Money held by StepChange is covered by the Financial Services Compensation Scheme, so you can get compensation if StepChange is unable to meet its financial obligations²⁷. That protection applies to money the charity holds for you, not to the debts themselves.

There are employment limits. There are some positions you cannot hold while on a protected trust deed, often when you are in control of other people's money, such as solicitors and many financial services roles⁴. The trustee must warn you before you grant a deed that it may damage your business interests and employment prospects²⁰.

Confidentiality is protected too. StepChange states that any conversation you have with it will be completely confidential³⁶, that it will not share your details with anyone¹⁷, and that its service is confidential, meaning it never tells anyone that you contacted it³¹. Where someone else controls your finances, it will work around your schedule to make sure you are in a safe place to talk, only get documents you can safely access, and keep any contact private or hidden³⁶.