A Trust Deed is a voluntary arrangement between you and your Trustee, but isn`t legally binding on all your lenders. It can, however, become a Protected Trust Deed, which is legally binding on your lenders and gives both you and them an extra level of security.
Once you`ve signed your Trust Deed, your Trustee will contact the lenders you`re including in the arrangement, asking them to agree to the terms you`re proposing. Your lenders are given a total of five weeks to send their response to your Trustee. If they fail to respond within this time, they will be treated as if they`ve agreed to the terms. After the five-week period is up, your Trust Deed will become protected by Scottish law (Protected Trust Deed) as long as more than half of your lenders, or lenders accounting for more than two thirds of your total unsecured debt, don't object.
Since a Protected Trust Deed is legally binding on all your unsecured lenders, they won`t be able to take any further legal action against you, as long as you adhere to your side of the arrangement.
A Protected Trust Deed is also binding on you. You must co-operate with your Trustee and comply with the terms you’ve agreed. You can no longer apply for your own sequestration or for a debt payment programme under the DAS (Debt Arrangement Scheme).
While you’re on a Protected Trust Deed, you won’t be protected against legal action from your mortgage lender if you fall behind with your payments. The same applies to any other secured lenders you owe money to. And you won’t be protected from action taken by any lenders you borrow money from after your Trust Deed has been signed, although you shouldn’t be applying for credit in this period anyway.
If your Trust Deed fails to become protected, your lenders can try to make you bankrupt, and you can also apply for your own sequestration, if that looks like the most appropriate way forward.