Prior to signing anything it is imperative to agree a monthly income and expenditure statement with the company handling your trust deed.
This income and expenditure statement lists all of your regular monthly income. It will also list all of your essential monthly expenditure. Your essential expenditure will be subtracted from your total income to determine the level of trust deed payment each month.
This should guarantee you have enough money to live reasonably. It should also ensure your creditors accept you are doing your best to repay an amount of debt you can realistically afford.
Why do trust deed expenditure guidelines exist?
If the creditors do not believe you are repaying a large enough amount they are unlikely to allow your trust deed to become protected. However, it is not in their best interests to challenge all expenditure items in a trust deed as this can greatly delay the repayment of the debt.
Therefore it is important that guidelines exist which help to determine reasonable expenditure levels for the duration of a trust deed. Creditors can quickly establish whether a trust deed repayment proposal is fair. In addition, trust deed companies and their clients have a mechanism to allocate a budget for the client which should be manageable.
The trust deed guidelines are based on figures provided by CCCS (the Consumer Credit Counselling Service). These figures are reviewed periodically by a committee which reviews general living expenses as they apply to individuals and families in the UK at that time. The figures are then circulated amongst creditor organisations and the advisers involved in providing the debt advice and debt solutions.
Do the guidelines cover all types of expenditure?
Certain items of expenditure are not specified by the guidance. Examples include mortgage repayments, secured loan payments, rent and council tax.
The reason these areas are not specified is that they vary enormously from family to family and from area to area. It is also not that easy to change these expenses from their existing levels.
Car hire purchase payments are also not specified, but may be subject to challenge if they are considered to be excessive.
So what is included in the trust deed expenditure guidelines?
The vast majority of expenditures paid by many households are covered by the guidelines.
For example, this will include utility bills, food, insurances, telephones, travel expenses or petrol, childcare, TV packages and predictable medical expenses.
Also included is provision for some less obvious expenditure such as sports and leisure activities, children’s activities, hairdressing, dry-cleaning and newspapers among others.
A contingency / emergency allowance may also be included to cover expenditure which does not neatly fit into the other categories.
Covering less regular expenditure
It is understood that some purchases are only made occasionally rather than every month. It is important that allowance is made for these irregular purchases so that they remain manageable over the longer term.
This includes expenditure such as car repairs, car tax, and home repairs. A monthly allowance may be included for each of these things.
It is then up to the debtor to put this money aside each month so the cash is available when the need arises. We suggest a second bank account is opened and that this money is set aside into the new account specifically for this purpose. Along with the emergency / contingency budget, these allowances should allow individuals to be able to manage financially without the need for new credit to be obtained.
Are the guidelines set at exact amounts each month?
The guidelines are generally set within ranges considered to be acceptable.
The lower end of the ranges serves to ensure that people do not leave themselves with too little money to be able to survive (and live reasonably) during the term of their trust deed.
The upper end of the ranges serves to ensure that creditors perceive that they are being treated fairly and are being repaid what can reasonably be afforded.
The use of ranges also allows for differences in the ways that individuals and families choose to live their lives and spend their money.
How does this work for couples?
When calculating a trust deed payment, even for just one person, all household income and expenditure will be recorded. This produces a figure for the total surplus income in that household after all essential expenditure is covered.
The surplus income for the household will then be divided between the two partners. Most commonly this will involve a division of the surplus based upon the relative earnings of each individual.
For example, if both partners earn the same amount they would each be deemed entitled to 50% of the surplus. If both persons were to sign trust deeds they would each use this amount (50% of the total surplus) to pay into their trust deed each month. If only one partner was signing a trust deed they might pay their 50% to the trust deed, with the other partner retaining their 50% share to spend as they wish.
If one partner earned twice as much as the other the situation would be different. That person would be deemed entitled to two thirds (67%) of the surplus household income which might become their trust deed payment. The other partner could spend their third (33%) as they wish (including funding a trust deed where appropriate).
This system ensures that each partner effectively pays their fair share of the household expenditure, which then allows them access to their fair share of the household surplus income
Are the trust deed expenditure guidelines publicly available?
CCCS request that their guidelines are not made publicly available.
We understand this is due to their concern they will be misused by debtors either to set their expenditure levels at the highest level allowable, or to manipulate their expenditure to qualify for debt solutions which are in fact inappropriate for their circumstances.
A good debt adviser or trust deed company will be able to work with you to create a budget which is both manageable and sustainable for you, and will help you and the adviser to identify appropriate debt solutions which are likely to be accepted by your creditors or their representatives.
We recommend that you take advice from a qualified debt adviser rather than relying on the frequently inaccurate information on trust deed expenditure guidelines which you may find posted elsewhere on the web.
If you have any further concerns regarding trust deed expenditure guidelines please join our forum and speak directly to the experts. Alternatively, call us now on 0800 043 7201 and our trust deed specialists will be delighted to help.
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