Section 167(3) of the Bankruptcy (Scotland) Act 2016 requires your trustee to warn you, before you sign, that granting the deed may result in your not being able to remain in your current place of residence.

That is Parliament’s own wording, and it sets the register for this page. Here is what each route does, what the law fixes, and where the published sources stop.

Your interest in it does, unless it is excluded. A trust deed conveys your estate to the trustee, and heritable property is part of that estate.

What the trustee is actually interested in

It is the equity, meaning the value above what is secured on the property. Where there is meaningful equity, the trustee owes a duty to creditors to deal with it.

AiB’s guidance is direct: trustees should not allow property to revert to the debtor where that would reduce the dividend, unless realising the equity is not cost effective. What happens to the equity in your home in a trust deed takes the money side on its own.

The warning the Act requires before you sign

Section 167(3)(a) lists what the trustee must tell you. Two of those items are about property: that you may not be able to remain in your current place of residence, and that you may be required to relinquish property you own.

Both are expressed as risks rather than certainties. Neither is a formality, and a trustee who skates over them is not doing the job the Act sets.

The two routes at a glance

Neither happens by default. Both are agreements, and the first of them has to be in place before you sign.

Through a section 166 exclusion, on Form 1A. It is available where there is a secured loan over your sole or main residence, and AiB directs trustees to consider it where there is minimal, no or negative equity.

How it is done

Section 166(2) requires the trustee to give you and the secured creditor a valuation by a chartered surveyor or other suitably qualified person. You then request, in the prescribed form, that the secured creditor’s agreement be obtained.

You sign Part 1 of Form 1A and the lender signs Part 2, agreeing not to claim under the trust deed for the secured debt. The concept comes from the Home Owner and Debtor Protection (Scotland) Act 2010.

What exclusion changes

• The secured lender cannot vote on the trust deed and receives no dividend from it.
• Your mortgage repayment terms are unchanged, so you keep paying the lender as normal.
• You remain personally liable for the excluded secured debt, including after your discharge.
• Under section 172(3) that creditor cannot claim under the deed, do diligence against the assets conveyed, or petition for your sequestration while the deed subsists.

A point of terminology

Older guidance calls this a section 10 trust deed. That was the numbering under the Bankruptcy (Scotland) Act 1985 as amended in 2010, and the current provision is section 166, using Form 1A.

Because it cannot be added afterwards. Every limb of section 166(2) is prefaced with the words “Before the debtor grants the trust deed”.

Read the subsection in order

The valuation must be provided before you grant the deed. The request for the secured creditor’s agreement must be made before you grant the deed, and any agreement obtained must be set out in the prescribed form before you grant the deed.

There is no later window. Once your signature is on the deed, the estate has already been conveyed.

What that means in practice

The moment to negotiate about your home is the only moment there is. How you apply for a trust deed in Scotland sets out the order the paperwork runs in.

Ask which route is being proposed before you agree to anything, and ask to see the valuation and the redemption figure that the proposal is built on.

Then the second route is a section 175 agreement, recorded on Form 1B. The trustee agrees not to realise the property in return for a payment, or for monthly payments running on after the payment period, or both.

The conditions the Act attaches

Section 175(2) requires you to pay an amount the trustee determines by a date the trustee determines, or to pay a monthly amount for a period so determined, and to co-operate with the administration of the trust.

Section 175(3) fixes the figures on a valuation of your heritable estate as at the date of grant of the trust deed, by a chartered surveyor or other qualified third party. Copies of the agreement go to AiB and to every known creditor.

The forfeiture clause

Section 175(4) lets the trustee withdraw from the agreement if you fail to fulfil a condition. AiB’s guidance adds that on a later sale the trust estate receives the full equity realised, regardless of the earlier figure.

So the frozen figure is a benefit of complying rather than a cap on what the estate can ever take. What happens to the equity in your home in a trust deed works through the numbers.

No, and this is the most under-reported fact in the whole subject. Schedule 4 to the 2016 Act applies neither section 112 nor section 113 to a protected trust deed.

What is missing, item by item

Schedule 4 has five paragraphs and none of them reaches sections 112 or 113. The schedule covers trustee remuneration, AiB’s audit power, the trustee’s own inhibition, the lodging of a claim to bar limitation, and the valuation of claims.

What the contrast means

In a sequestration the Act tells the trustee to obtain a consent or to go to the sheriff, and the sheriff can refuse or postpone. Part 14 gives a trust deed trustee no equivalent hurdle.

Nor is there any three year clock. A trust deed trustee’s interest in heritable property is not time limited, so waiting achieves nothing, and what sequestration is in Scotland sets out how the two routes differ on this.

That asymmetry is a reason to take advice before choosing between them. It is not, on its own, a reason to prefer one over the other.

The published sources do not settle it, and no page should pretend otherwise. What they do settle is that the sequestration safeguards above are absent, and that AiB records that you may refuse consent to the sale of your sole or main residence.

What is established

• Your interest in the property is conveyed to the trustee unless it is excluded under section 166.
• The trustee owes duties to creditors over any equity, and AiB expects the equity to be pursued unless realising it is not cost effective.
• Sections 112 and 113 are not applied to trust deeds by schedule 4.

And AiB’s Notes for Guidance record that the debtor may refuse consent to the sale of their sole or main residence. That is AiB’s stated position rather than a provision of Part 14, and the consequence of refusing is the next paragraph.

What is not established

The route by which a trust deed trustee could realise heritable estate over your objection is not spelled out in Part 14, and no published guidance we can point at describes one. The position of a co-owning spouse is not settled either.

That is an honest gap rather than a reassurance. A page that tells you a sale is highly unlikely, or that describes a procedure, is going further than the sources allow.

What to do about it

Put the question to the trustee in writing before you sign, and ask what they would do if no agreement were reached on the property. Take the answer to a free money adviser.

Refusing consent has a consequence of its own, because your discharge depends on a trustee statement that you met your obligations and co-operated. What happens if your trust deed fails explains where that leads.

A tenancy is not equity, so there is nothing for the trustee to realise. Where you own jointly, only your own share of the equity is in the trust deed.

Renting

Rent arrears that built up before you signed can be included in the deed. Ongoing rent is a new liability and has to keep being paid, alongside your contribution.

Section 88 also preserves a landlord’s right of hypothec, so a trust deed does not sweep that away. Tell your landlord nothing is changing about the current rent.

Joint ownership

mygov.scot puts it plainly: where you own your home jointly with someone else, the trustee can only take your share of the property equity.

A trust deed also cannot be granted jointly. Section 164(1) requires a deed for a single estate, and AiB confirms that couples cannot grant one together whatever their marital status.

That cuts the other way on debts. Where a debt is shared, the other person becomes solely responsible for the payments once you enter a trust deed.

Six things, all of them in writing, and all of them before the deed is granted. After signature the estate has been conveyed and the section 166 window has closed.

The checklist

One trap that catches people later

Excluding the house under section 166 protects the house, not the proceeds. mygov.scot states that if you sell a home excluded from the trust deed, any money you are left with after the costs of sale must be passed to your trustee.

That follows from section 167(1)(b), which conveys estate acquired in the four years after granting. Speak to the trustee before marketing anything.

And one thing worth remembering about the register

A protected trust deed is public. AiB’s information document puts the Register of Insolvencies entry at the deed’s duration plus twelve months after completion, and whether your trust deed appears on the Register of Insolvencies covers who can search it.