How Do Trust Deed Payment Instructions To Employers Work?

It exists because you granted a trust deed and agreed a monthly contribution. It is a way of collecting money you already owe under an arrangement you entered into.

The comparison worth holding on to is this. An earnings arrestment is a creditor taking money from your wages through court-backed enforcement, while a payment instruction is your own trustee collecting a payment you set, and what is a protected trust deed explains the arrangement itself.

What is a trust deed payment instruction?

A statutory instruction to your employer to deduct your agreed contribution and remit it to your trustee. It is not diligence, it is not an arrestment, and no court is involved at any point.

Where it sits in the Act

Section 174 sits in Part 14 of the Bankruptcy (Scotland) Act 2016, the Part that deals with protected trust deeds. It is one of the trustee’s collection powers rather than a creditor remedy.

The instruction goes on prescribed forms, numbered 4A, 4B and 4C. Your trustee completes them and deals with the employer directly.

Two things that look alike on a payslip

The practical difference is that one is imposed on you and the other collects something you agreed. What is a wage arrestment in Scotland sets out the diligence side.

When can a trustee use one?

After two consecutive missed contributions. Section 174(1)(c) is explicit that the trigger is having failed on two consecutive occasions to pay that amount to the trustee.

The first move is not the one people expect

Section 174(2) says the trustee requests, and you must then give your employer the prescribed instruction. The trustee only instructs the employer directly under section 174(3) if you fail to comply.

So the sequence starts with you instructing your own employer. That two-stage structure is the part no commercial trust deed page describes.

The sequence in full

Missing payments is the thing to avoid rather than the thing to plan around. What happens if you miss a payment on your trust deed covers what else follows two missed contributions.

Does your employer have to comply?

Yes. Section 174(5) says the employer must comply, and section 174(6) makes an employer that fails without good cause liable to pay on demand the amount that should have been paid.

The same sting as an arrestment

Section 174(6) also says the employer is not entitled to recover from you the amount it paid you in breach of the instruction. An employer that ignores the paperwork pays twice.

That is deliberately close to the earnings arrestment rule, where section 57(1) of the Debtors (Scotland) Act 1987 does the same job. The two mechanisms borrow from one another without being the same thing.

The £1 charge appears here too

Section 174(7) lets the employer charge a fee equivalent to the fee chargeable under section 71 of the Debtors (Scotland) Act 1987, and deduct it from the balance due to you. That figure is £1.00, and can your employer charge a fee for processing a wage arrestment explains where it comes from.

So the pound follows the mechanism rather than the label. It is charged by the employer for doing the payroll work, in both cases.

Does your employer have to be involved at all?

Not from the start. Section 174 is a remedy for missed contributions, so it only comes into play once two payments in a row have gone unpaid.

Ask before you sign, not after

• How will my contribution be collected, and do I have a choice of method?
• If my employer is instructed, what exactly will they be told?
• What happens to my existing wage arrestment, and on what date?
• How will I be protected between signing and protection?
• What happens if my income drops or my hours are cut?

What your employer sees

Only payroll and whoever handles the paperwork need to know, and the deduction shows on your payslip like any other. Will your colleagues find out about your wage arrestment covers the equivalent point for an arrestment.

There is no law allowing an employer to dismiss you for a trust deed contribution or a wage arrestment. Dismissal on that basis alone would be exposed to an unfair dismissal claim by an employee with the qualifying service of two years.

Some regulated roles, in financial services for example, involve fitness and propriety checks where serious financial difficulty is relevant. A protected trust deed is more visible than an arrestment because it is recorded on the Register of Insolvencies.

What happens to an existing wage arrestment when the trust deed is protected?

It ceases. Section 173 of the 2016 Act ends any earnings arrestment, current maintenance arrestment or conjoined arrestment order on the date of protection, automatically and with no application to any court.

The date is protection, not signing

Protection runs from the date of registration under section 163(2), not from the date you sign. The weeks in between are the exposed period.

Deductions carry on through that gap. Does a trust deed stop a wage arrestment deals with the timing, and what happens between signing a trust deed and it becoming protected covers the gap itself.

A statutory moratorium is the exception. It does not stop an earnings arrestment that was already running: section 197(5)(d) of the Bankruptcy (Scotland) Act 2016 lets a creditor carry on executing an earnings arrestment, a current maintenance arrestment or a conjoined arrestment order that came into effect before the moratorium began.

What protection does and does not reach

There is no equivalent section for a bank arrestment anywhere in Part 14. What protects you instead is accession: every creditor either accedes or, under section 172(1)(a), has no higher right than one who did, and an acceding creditor cannot enforce.

Money already taken

Deductions made before the date of protection are credited against the debt rather than returned. Check the figures with the creditor and your trustee, and can you include council tax in a trust deed covers how a council’s claim is dealt with.

How long do the deductions run for?

As long as the contributions do. Section 168(2) sets a payment period of 48 months from the date you grant the deed, which can be shorter or longer in a given case.

What the contribution is

Section 168(5) puts the whole of your surplus income, meaning total income less allowed expenditure, towards creditors. The trustee’s fees come out of that rather than being billed to you separately.

Contributions cannot be drawn from Universal Credit, Social Security Scotland benefits or tax credits, though those are taken into account when other income is assessed.

When the instruction ends

Section 174(8) requires the trustee, without delay after your discharge, to notify anyone who received an instruction that it is recalled. That is the statutory end point.

What the Act does not say about changing jobs

Section 174 has eight subsections and none of them deals with a change of employer. There is no provision saying the instruction falls with the employment and none saying it follows you.

That is a real contrast with an earnings arrestment, which falls with the employment under section 47(2) of the Debtors (Scotland) Act 1987. The contrast is worth drawing and it is not an answer.

So tell your trustee before you change jobs and ask what they will do, rather than assuming either outcome. What happens if you move house or change jobs during a trust deed covers the wider duty to keep the trustee informed.

What happens if the trust deed never becomes protected?

Section 173 does not bite. Without protection an existing earnings arrestment carries on and new diligence can be executed, because creditors are not bound by the deed.

How protection is decided

Nothing has to be agreed. Section 170(2) deems creditors to have acceded unless the trustee receives written objection, within the relevant period, from a majority in number or no fewer than one third in value of them.

Silence counts as accession.

Section 193 fixes the relevant period at five weeks beginning with the date the notice under section 169 is registered.

That is the opposite of how it is usually described. The test is whether enough creditors object, not whether enough approve, and a creditor who never replies is counted as having accepted.

The entry condition people get wrong

There is a statutory minimum debt and it is not a practitioner preference. Section 164(3) requires your total debts, including interest, to be not less than £5,000 at the date you grant the deed, and our trust deed page sets out the conditions.

Plenty of published advice says there is no statutory minimum. That is wrong, and it matters because below the figure a trust deed cannot become protected at all.

The alternatives worth comparing first

An approved Debt Payment Programme under the Debt Arrangement Scheme stops an existing earnings arrestment, freezes interest, fees and charges, and is not insolvency.

• Sequestration and the Minimal Asset Process end an existing arrestment on the date of sequestration, under section 72(2) of the 1987 Act.
• A time to pay order requires the sheriff to recall any existing earnings arrestment, where the debt outstanding is £25,000 or less excluding interest.

A trust deed is formal insolvency, it goes on a public register, and it deserves to be compared properly before you commit. Which debt solution is best if you have a wage arrestment puts the routes beside each other, and the Accountant in Bankruptcy publishes guidance on how protection works.