The Link Between Protected Trust Deeds and Homelessness

At Legal Services Agency (LSA), we endeavour to identify patterns in our casework and in turn, undertake research and advocacy to highlight social justice issues affecting marginalised communities.

In line with this aim, we have observed a link between Protected Trust Deeds and homelessness. This prompted our consultation with debt advisers which confirmed that problems with Protected Trust Deeds can have knock-on effects to individuals’ housing security.

This article, supplemented by case studies and survey responses from debt advisers, will examine the potentially adverse impacts of Protected Trust Deeds on housing security, to raise awareness of the importance of informed debtor choice.

What is a Protected Trust Deed?

A Trust Deed is a type of personal insolvency solution. It is a voluntary agreement between a debtor and their creditors which is managed by an insolvency practitioner called a ‘trustee’.

When a debtor enters a Trust Deed, they agree to pay a fixed amount of money towards their debts for a set period of time – usually four years – and in this time any assets they own are passed to their trustee. The trustee makes regular payments towards the individual’s creditors. If, by the end of the agreed period, the debtor has made all scheduled payments to their trustee, the remaining debts included within the Trust Deed are written off.

To be able to sign a Trust Deed, an individual should:

• Have over £5000 of debts
• Have enough income to make regular payments towards their debts, but not enough to pay their debts off in full in less than four years
• Not rely on benefits as their only income[1]

A Trust Deed becomes ‘protected’ if the majority of the included creditors consent. A Protected Trust Deed is binding on all creditors, meaning that they cannot take steps to recover the money owed to them.

If an individual stops making regular payments to their Protected Trust Deed, it “fails”. The person must then pay back all their debts, with creditors able to backdate interest and charges.[2] According to the Accountant in Bankruptcy, from 2023 to 2024, 839 Protected Trust Deeds failed – 11.7% of all Protected Trust Deeds that concluded in this time.[3]

Concerns with Protected Trust Deeds

In recent years, concern has grown over how the Protected Trust Deed market operates.

These concerns have been summarised in a report by Citizens Advice Scotland titled Protected? Trusted? Is there detriment in the Protected Trust Deed market? which highlighted problems commonly experienced by those who had entered Protected Trust Deeds, including:

• Unaffordability: Citizens Advice Scotland found many clients in unsuitable Protected Trust Deeds, destined to fail due to unaffordable payments. This was sometimes due to poor assessments by providers who had shoehorned clients’ circumstances to fit the criteria for a Protected Trust Deed.
• Poor advice: Citizens Advice Scotland also found individuals were sometimes given poor advice prior to entering their Protected Trust Deed. They were not informed of other debt solutions and were given insufficient information on what a Protected Trust Deed entails.
• Front-loading of fees: Additionally, Citizens Advice Scotland have found that many Protected Trust Deeds include extremely high administrative fees. These fees are regularly in the thousands and front-loaded. This can mean individuals experience poor outcomes if they can no longer afford to pay into the Protected Trust Deed. If a Protected Trust Deed fails after an individual has already made substantial progress towards repaying it, oftentimes all their debts are returned to them, as all payments made up to that point have gone to trustee’s fees.

These issues – unaffordability, poor advice, and front-loading of high fees – have severe consequences for the individual in the Protected Trust Deed. One consequence is the increased risk of homelessness.

The link to homelessness

LSA – through our Housing and General Court Department – assist with a wide range of housing law issues, including defending eviction actions.

We have found that some of our clients facing eviction have entered into Protected Trust Deeds which have worsened their financial situation and, in turn, increased their risk of being evicted.

Rent arrears are a priority debt, as non-repayment of arrears can lead to the loss of someone’s home. We consider that there are a number of ways that entering into a Protected Trust Deed can have a negative effect on an individual’s likelihood of repaying rent arrears.

Case study:

Mr G contacted us because he was being evicted by his landlord. Mr G had been making regular monthly payments to his Protected Trust Deed with the belief that this was protecting him against eviction. However, the fees charged by the trustee for administration of the Protected Trust Deed were front-loaded, and Mr G’s landlord had received no repayment – leading to the eviction action.

Clients can be unaware that they are not protected from eviction through the Protected Trust Deed.

Irrespective of whether a rent debt has been rendered unenforceable through a process such as a Protected Trust Deed, the court can still competently grant an order for eviction if rent was due and went unpaid. However, as can be seen in Mr G’s case, clients can be unaware that entering into a Protected Trust Deed does not protect them from eviction.

This is consistent with findings from debt advisors. 88% of the debt advisers that we surveyed reported that they had assisted people who entered into a Protected Trust Deed without a sound understanding of their purpose and how they operate.

One debt advisor told us: “[we] have experienced clients who are in Protected Trust Deeds that have very limited understanding as to what this actually means. As an example of how even very basic information seems not be being relayed to clients, one of my clients in a Protected Trust Deed said she didn’t know what a Protected Trust Deed was.”

Clients can be unaware that trustee’s fees are front-loaded, and their landlord has received minimal or no repayment.

In Mr G’s case, he had been making payments to his Protected Trust Deed for some time without his landlord receiving any repayment of his rent arrears – despite the fact that rent arrears are a priority debt.

44% of debt advisers told us that when rent arrears are included in a Protected Trust Deed, landlord creditors are not able to recover outstanding rent arrears within a reasonable period of time.

One debt advisor said that: “many debtors do not understand how a Protected Trust Deed works, that the majority of their payments go towards the administration of the Protected Trust Deed, with creditors only receiving a minimal amount in dividends. They often believe that they are paying off the debt when that is not the case.”

Evidently, there are individuals in debt that are spending a significant amount of their income on a Protected Trust Deed payment – a minority or none of which is going to their creditors. It is crucial to note that this is money that could alternatively be used as repayment towards rent arrears, potentially preventing eviction.

Case study:

Mr J was being evicted by his landlord. He had entered into a Protected Trust Deed several years earlier and had been consistently making payments towards it. However, Mr J’s Protected Trust Deed was unaffordable, and he was accruing rent arrears and other additional debts in order to make consistent payments to the Protected Trust Deed.

Clients can be in unaffordable Protected Trust Deeds and accruing further debt.

As illustrated by the above case study, some individuals are entering unaffordable Protected Trust Deeds.

In our survey, 94% of debt advisors said that they believed that some debtors are entering into Protected Trust Deeds that they cannot afford to maintain.

When invited to tell us more, debt advisors expressed the following concerns:

• “From working with a [Housing Association] some debtors are still missing rent payments – therefore accruing further arrears in particular times such as Christmas, school holidays etc”
• “[Entering into a Protected Trust Deed] increases the risk [of eviction] as most of my clients who have come to me in a Protected Trust Deed have run up rent arrears outwith the Protected Trust Deed while maintaining a perfect payment record for the Protected Trust Deed.”
• “I have had many clients come to me over the years who have entered into Trust Deeds but could clearly not afford to maintain and have then gone onto accrue further priority debt and have put tenancy at risks.”
• “Protected Trust Deeds are either going to fail, or clients are going to miss ongoing liabilities such as rent, council tax and utility bills to try and maintain the Protected Trust Deed. Some clients end up having more debt after a Protected Trust Deed is completed than they did beforehand.”

This is a particularly difficult situation as debtors feel they have no choice but to continue making payments. If they stop and the Protected Trust Deed fails, they risk being left with the full amount of their original debt, having lost all prior payments, which are first applied to the trustee’s fees before any funds reach their creditors. As one debt advisor told us: “they are at risk of court/eviction action but with few options, as they are already stuck in a statutory debt solution which they can’t just get cancelled.”

Conclusion

Overall, this evidence indicates that problems with a Protected Trust Deed can increase an individual’s risk of eviction and homelessness.

From our consultation with debt advisers, a common theme emerged – that informed debtor choice is key.

As one debt adviser told us: “Unfortunately an internet search for help directs [individuals with debt] to those companies who are out to make money […] they would be better being advised to go to the free services who offer free, impartial and confidential money advice and are there to work for the customer to determine the best debt solution for them.”

Unfortunately, financial pressures on the free advice sector mean that it can be difficult for debtors to access relevant resources and advice. This is particularly challenging given that individuals seeking statutory debt solutions are often doing so during a period of significant stress and anxiety. Those with protected characteristics may also face additional barriers and may require further support to be able to navigate the process.

Access to effective insolvency solutions relies on access to high quality and impartial money advice. It is vital that the free money advice sector is adequately funded to ensure that people can understand their full range of options and are empowered to choose a debt solution suited to their circumstances.  Informed decision-making is crucial in reducing the risk of housing insecurity and homelessness.

Legal Services Agency are grateful to Money Advice Scotland and the Glasgow Citizens Advice Bureaux for sharing our survey and we extend a sincere thank you to all the debt advisers who took the time to provide their answers.

[1] Trust deeds in Scotland – Citizens Advice

[2] Protected Trust Deed. Scottish Debt Solutions. StepChange

[3] Accountant in Bankruptcy – Scotland’s Insolvency Service – Scottish Statutory Debt Solutions – Annual Statistics: 2023-24 Report and Supporting Documents

Amy McGilp                                                                                                          Communications Officer