My living expenses are too high for a Trust Deed – what can I do?

1st October 2010

If you are struggling with debt but your living expenses are too high to do a trust deed, we consider what options are open to you.

If you have personal debts that you cannot afford to repay, you may be considering a protected trust deed.

However, a protected trust deed will only be accepted by your creditors if your living expenses are reasonable and not too high.

The definition of what are reasonable living expenses will depend on your personal circumstances.

What are reasonable living expenses?

Your rent or mortgage payment, council tax and utility bills are determined by the type of house you live in and how many people are in your family. You will generally not be able to change these expenses very much, particularly in the short term.

However, other expenses such as the amount you spend on food, travel and fuel and clothing are more flexible.

If you are signing a trust deed, your creditors will expect you to keep within some living expenditure guidelines for these flexible expenses which have been commonly agreed.

Justify excessive expenditure

Guidelines about acceptable expenditure exist and are used by debt advisors and trust deed companies. With their help you will then be able to compare your expenditure to your income and see what is left which can be used as a payment to your creditors – your disposable income.

If your disposable income is high enough to meet the minimum payment required for your protected trust deed but some of your living expenditures are higher than the guidelines, you will have to be prepared to justify what you spend.

If you cannot do this, your creditors may not accept your trust deed unless you agree to reduce your expenditure and pay them more.

Cut back on your spending

If your disposable income is not enough to meet the required payment for a trust deed, you should first review your living expenses and see if you can make any cut backs.

Alternatively, you may be able to increase your income. Perhaps taking a part time job or renting out a spare room to a lodger.

However the most important thing to remember is never agree to cutting back on your living expenditures or increasing your income if you do not believe that these changes are sustainable.

It is a big mistake to agree to make monthly trust deed payments that you cannot afford.

If you do this, then at best you will find it incredibly difficult to live for the three years (in some cases longer) that your trust deed is running. Or at worst you will simply not be able to keep up with the payments and your trust deed will fail. You could then risk being declared bankrupt.

Consider a debt management plan or the debt arrangement scheme

The golden rule when considering a trust deed is if you cannot comfortably afford the required monthly payments, then you should not proceed.

As an alternative your next best option may well be a debt management plan (DMP) or the debt arrangement scheme (DAS). You will almost always be able to start a DMP or DAS based on lower monthly payments which you can afford.

If you choose a DMP stick with it for six months. This will give you a breathing space from your creditors and time to really understand your monthly budget.

If your income improves or you feel that you can make cuts in your expenditures, you could then reconsider starting a trust deed at that time. Alternatively you might be happy to stick with your debt management plan.

In certain circumstances you may also wish to consider low income low asset (LILA) sequestration as an option.

Contributed By:

James Falla

Debt Consultant

www.beatmydebt.com

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