What Happens If You Miss A Payment On Your Trust Deed?

There is a defined process with defined protections, rather than a creditor deciding on the spot. What a protected trust deed is sets out the arrangement it sits inside.

Here is what your trustee can actually do, what a payment break really is in Scotland, and what happens at the far end if the arrangement fails.

How many payments can you miss in a trust deed?

There is no number you are entitled to miss. The statutory trigger is failing on two consecutive occasions to pay the contribution to the trustee, and that is a power the trustee may use rather than one it must.

Where the trigger sits

Section 174(1)(c) of the Bankruptcy (Scotland) Act 2016 sets the condition, and the section came into force with the rest of Part 14 on 30 November 2016.

A trustee who has been told what happened, and who has a plan in front of them, has less reason to use it. That is the practical reason to make the call early.

The escalation, in order

The distance between the first row of that table and the last is measured in months and in silence. Each stage has its own statutory trigger, and none of them fires on a single missed payment.

What happens after two missed payments?

Section 174 works in two stages, and the first one is a request to you. The trustee asks you to give your employer the prescribed instruction, and only gives it to your employer directly if you do not comply.

The two stages

Under section 174(2) the trustee requests and you must give the instruction, on Form 4A. Section 174(3) lets the trustee give it directly, on Form 4B, if you fail to comply, and Form 4C varies an instruction already in place.

So the first move is not your trustee going behind your back. How trust deed payment instructions to employers work covers the forms in detail.

What your employer has to do

Section 174(5) says the employer must comply. Section 174(6) makes an employer that fails without good cause liable to pay the amount that should have been paid, and it cannot recover from you what it paid you in breach of the instruction.

Section 174(7) lets the employer charge a fee equivalent to the fee chargeable under section 71 of the Debtors (Scotland) Act 1987, which regulation 3 of the Diligence against Earnings (Variation) (Scotland) Regulations 2006 set at £1.00 with effect from 5 April 2006.

Payroll processes it much like any other wage deduction. Section 174(8) requires the trustee to notify a recall without delay after your discharge.

If you would rather your employer was not involved

The way to avoid it is to keep the trustee informed before the second payment is missed, not after. That is the whole of the answer.

Is there a payment break in a trust deed?

No, not as an entitlement. There is no statutory payment break in a protected trust deed, and the six month break people have read about belongs to a Debtor Contribution Order in bankruptcy.

What the bankruptcy break actually is

It is available once, lasts a maximum of six months, and requires a reduction of at least 50 per cent in disposable income arising from a defined event. Those events include unemployment or a change of employment, parental or dependant care leave, illness, divorce or dissolution, separation, or the death of a dependant’s co-carer.

None of that machinery is carried across into Part 14. It sits in AiB’s bankruptcy guidance and attaches to a mechanism that does not exist in a trust deed.

The two positions side by side

Your trustee may still agree to a break in payments as a matter of practice. Ask for it in writing, and do not treat it as something you are entitled to.

Can the payment period be extended instead?

Yes, and it is the standard way of dealing with arrears. Section 168(2) sets the payment period at 48 months from the date the deed is granted, but allows a longer period where contributions have been missed or where you and your trustee agree.

What an extension does

The payments you could not make are added to the end of the term rather than written off. Section 168 is the provision, and section 180 requires the trustee to notify AiB of any modification to the payment period.

So an agreed extension is recorded rather than informal. Ask for the revised projected end date in writing, because how long a trust deed lasts in Scotland depends on exactly this.

Reducing the contribution

AiB’s guidance recognises that a material change in circumstances may warrant modifying either the contribution amount or the repayment timeframe. Your trustee reassesses income and expenditure using the common financial tool, and how trust deed monthly payments are calculated sets out how that assessment works.

Bring evidence. Payslips showing reduced hours, a benefit award letter or a new tenancy agreement do more than a phone call.

What if you can never afford the payments again?

There is a route for that. Sections 184B and 184C, in force from 1 July 2024, allow an early discharge where circumstances beyond your control prevent you meeting your obligations with no reasonable prospect of recovery before the 48 months end.

How it works

AiB’s example is a condition or illness that prevents the debtor fulfilling their obligations. The trustee notifies creditors with the details and asks for their consent.

Creditors have 21 days to respond. If a majority in number or one third in value agree, the trustee submits Form 5, and if that proportion objects the matter goes to AiB for review.

It is a gateway of circumstance, not of money

The test is extenuating circumstances rather than the size of any offer, and there is no provision in Part 14 for buying your way out early. How long a trust deed lasts in Scotland deals with early settlement.

What happens if the trust deed fails completely?

The debts remain outstanding. Where AiB agrees that your discharge should be refused, section 172(2) means creditors cease to be deemed to have acceded, and AiB’s position is that they are then free to enforce debt recovery action.

The procedure, and your appeal right

Since 1 July 2024 a trustee cannot refuse your discharge alone. Section 184 and section 184A require an application to AiB on Form 5A, explaining the reasoning, and only where you have unreasonably failed to comply or have not co-operated.

Where AiB agrees, the trustee must tell you in writing within 7 days, giving the reasons, confirming the debts remain outstanding and setting out your right of appeal to the sheriff. A copy goes to AiB within 21 days.

If AiB disagrees with the trustee it discusses the matter and, failing agreement, issues a direction. That direction can itself be appealed to the sheriff.

What happens to the money you already paid

The protected trust deed information document your trustee gave you before signing puts it bluntly: if the arrangement is cancelled, creditors can start asking for payment again and may add fees, and you will not get back any money you paid in.

That is the real cost of a failed trust deed, and it is the reason to make the call early. What happens if your trust deed fails deals with collapse in full.

What is not held against you

AiB’s guidance lists grounds that are not proper reasons to refuse a debtor’s discharge: a change of circumstances that prevents you paying a contribution, extenuating circumstances, and assets realising less than the trustee originally estimated.

So a genuine drop in income, properly disclosed, is not the same thing as walking away. The distinction AiB draws is between circumstances outside your control and an unreasonable failure to co-operate.

How do you get things back on track?

Contact the trustee before the second payment is missed, put the reason in writing, and ask specifically for either a temporary reduction or an extension of the payment period.

What to send, and why

Why trustees respond to this

Trustees deal with arrears constantly. What they cannot work with is silence, because their duty runs to creditors as well as to the administration of the trust.

A rise in income has to be reported for the same reason, and what happens if you get a pay rise during a trust deed covers the other direction.

Get a second opinion if you want one

Citizens Advice Scotland, StepChange and National Debtline all advise on trust deeds without charge, and whether to use a free debt charity or a paid debt adviser covers the difference between them.

You never have to pay for an independent view of what your trustee is proposing. The thing that turns a difficult month into a failed trust deed is usually the gap between the missed payment and the phone call.