Will my benefits count towards a trust deed?

8th September 2011

A common question that arises in our Scottish trust deed forum is connected to whether particular types of benefits income should count towards the calculation of a trust deed payment. In this article we will look at the issues involved and how your trust deed might be affected in certain scenarios.

Let’s start with the facts; when reviewing your household finances to determine what your trust deed payment should be the trust deed firm will seek information about all source of household income. In almost all circumstances all household income will be taken into account in the calculation. This situation tends to arouse strong feelings.

Such strong feelings sometimes appear to be connected to the fact that some benefits are paid specifically to help an individual or family member deal with a difficult situation. For example it’s common for frustration to be caused when disability living allowance (DLA) or Incapacity Benefit is factored into a trust deed payment.

What needs to be remembered however is that income is only one side of the trust deed payment calculation. The other side of the equation is that your household costs will be taken into account as well. DLA is typically paid to cover additional expenses related to a particular condition or injury. These expenses should also be listed in the examination of income and expenditure meaning that additional needs remain covered.

The use of child benefit for the payment calculation may also cause concern. Once again there are two sides to this coin; expenses connected to bringing up children will also be listed out and therefore mitigate against an unaffordable payment towards the trust deed being calculated.

The fact of the matter is that a trust deed payment is always based upon affordability. As such benefit income will always be relevant but so will the associated needs for which the benefit is being paid. In such a way the use of benefit income to help fund a trust deed need not be detrimental to the ability of the individual (or their family) to cover their reasonable living expenses during the course of the trust deed.

A different scenario is the case where an individual relies on benefit income alone and there is no earned or private pension income. In this scenario the choice of a trust deed would not be appropriate and trust deed firms are guided not to take on the case.

Benefits by their very nature are designed to cover a need without providing the luxury of surplus to either fund debt solutions such as a trust deed or to fund the payments on debts accrued in the past.

Where an individual who is struggling to repay their debts lives on benefit income sources alone they are likely to find that permanent solutions to their debt will be limited to sequestration; perhaps using the Low Income Low Asset (LILA sequestration) route to bankruptcy.

Where an individual who lives on benefit income alone considers that their situation will improve (perhaps they are looking for employment for example) they may be able to manage their creditors temporarily through means such as the issuance of token monthly debt payments (often of £1 per creditor). This may provide some breathing space until earned income resumes and contributory formal options such as a trust deed or the Debt Arrangement Scheme once again become available and potentially suitable.

If you need to know anything about getting a trust deed there are loads of resources out there that can help. Our advice line and trust deed forum are two examples of resources run by reputable and professionally qualified trust deed advisers.

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