Notes for Guidance - Protected Trust Deeds - Bankruptcy (Scotland) Act 2016

The trust deed must state that the debtor will be expected to make a contribution from their income at regular intervals for a minimum period of 48 months, unless an alternative arrangement has been agreed – for example a deed based on asset realisation only.

The trustee may agree a shorter period, if it can be demonstrated that sufficient funds (from assets realisation supplemented by contributions) will be paid to allow payment of the debtor’s debts (including interest accrued at the date the trust deed is granted) that have been substantiated through the adjudication of claims submitted by the creditor.  In these circumstances, provision should also be made for the payment of statutory interest accruing from the date the trust deed was granted and the costs of administering the PTD.

The debtor must provide information about their income and expenditure. The trustee will assess a reasonable level of contribution based on calculation of the debtor’s individual income and expenditure and any excess income they may have. This assessment must take into consideration the style and format of the Common Financial Statement, which is a recognised tool for determining acceptable amounts for a debtor’s expenditure on items, and services and for determining the amount of contribution that the debtor can pay.

No contribution can be taken from a debtor’s Universal Credit or Social Security benefits, but the trustee may take account of such payments when determining the amount of a contribution. The contribution will be derived from the element of income that is in excess of the benefits received.  Section 181(6) of the 2016 Act refers. No contribution can be taken from a debtor’s tax credits, Universal Credit, or other Social Security benefits, which includes allowances and payments specified in the Social Security (Scotland) Act 2018 and the Scottish Child Payment Regulations. However, the trustee must take account of such payments when determining the amount of a contribution. A contribution amount can only be derived from the element of income that is in excess of the benefits received. Section 181(6) of the 2016 Act refers.

Appendix A of the Notes for Guidance - CFT records the types of income from which a contribution can, and cannot, be taken. 

Trustees should exercise care when taking account of any other parties’ income when determining if the debtor can pay a contribution, as there is no legal liability on any third party to contribute to the debtor’s PTD.

The trustee must inform creditors if all or part of the contribution is to be made by a third party. The trustee must inform creditors if an enforceable agreement has been entered into, or not.  If not, creditors must be advised that the funds offered and paid by a third party, cannot be relied on, or guaranteed to creditors.  If an agreement has been entered into, a copy should be submitted to AiB for retention.  In all cases, the Accountant will require details of the third party’s name.

A trustee should not accept payment from a third party if the third party is also subject to a Debt Payment Programme approved under the Debt Arrangement Scheme or a statutory debt relief product and such a contribution may prejudice payments made to benefit their creditors.

Contributions should not be sought from any Scottish Welfare Fund grant paid to a debtor. These grants are awarded only in order to avoid serious damage, or risk to the health or safety of the recipient or their family and should not be taken by the trustee for payment of historic debts.

If a debtor has received a redundancy severance payment post granting of the trust deed, it is important that the trustee identifies if any aspect of the payment is conveyed to the trustee and, is income in lieu of wages. Detailed guidance on redundancy severance payments can be found in Notes for Guidance - Bankruptcy.

Pay in lieu of notice (PILON) should be considered income of the debtor over the period it has been paid for, when considering if there is the need to amend the debtor’s PTD contribution amount.

Statutory redundancy pay should be assessed in the period in which it is received.

The debtor should be advised that:

• an adequate level of contributions may be required in order to ensure that the trust deed makes an acceptable proposal for creditors
• the level of contributions can be varied up and down if the debtor’s circumstances change
• the period of contributions can be extended or shortened if the debtor’s circumstances change, or they miss any contribution payments
• if the debtor cannot pay a contribution, they must contact their trustee immediately
• if they fail to pay their contributions, their trustee may notify their employer and have the contribution deducted from their wages
• if they fail to pay their contributions, their trustee may apply for their bankruptcy

The level of contributions, frequency and the number of contributions to be made must be specified and agreed by the debtor, before the trust deed is granted.

If the total amount of contributions to be paid into the trust deed over 48 months will equal, or exceed, the total amount of the debtor’s debts, at the date the trust deed was granted, the trust deed cannot become protected. Section 168(4) of the 2016 Act refers.