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Is It Allowable To Use Credit During Trust Deeds?

Please note that this article concerns whether it is allowable or sensible to obtain further credit. Whether it would actually be possible to do so is, of course, a very different question.

Many people are surprised to find out that, generally speaking, it is allowable to continue using credit during Scottish trust deeds. Other debt solutions (such as bankruptcy, the debt arrangement scheme, or an IVA elsewhere in the UK) will generally involve restrictions in this area over and above those that apply to trust deeds.

Some types of credit are actually so commonplace that most people don’t consider them to be credit at all. An example might be a mobile phone contract, paying your utility bills in arrears, or a TV package that is paid monthly in arrears. Persons that are in trust deeds (or thinking about starting one) will be relieved to know that the arrangement itself will not prevent them from using such everyday types of credit.

Many people in trust deeds also have forms of secured credit including mortgages, secured home loans, or hire purchase on a car for example. Once again, trust deeds do not restrict a person from continuing to service such financial commitments. Payments for important goods and services on secured credit agreements are prioritised in the budgets used by persons in Scottish trust deeds.

When thinking about credit most people are actually considering bank overdrafts, bank loans, credit cards, payday loans, and doorstep lending. Once again, those using trust deeds Scotland services aren’t forbidden from applying for such credit. However, the use of credit during trust deeds in Scotland comes with a major health warning.

Why Accessing New Credit During Trust Deeds Is So Dangerous

While you are in a protected trust deed in Scotland you will be expected to pay what you can afford towards your debts every month. This is worked out by totalling all of your income, and then subtracting your reasonable expenditure (it’s a slightly more complex equation where people cohabit but only one of them is in a trust deed).

This calculation of your trust deed contribution will take account of some of the types of credit mentioned previously. For example, provision will be made to allocate cash to pay your mobile phone contract, your utility bills, your mortgage, or HP on a car which has been agreed to be reasonable with your trust deeds firm.

The calculation of the monthly payment will not take any account of new unsecured credit taken out in the form of credit cards, bank loans, payday loans, or doorstep loans for example. So if you borrow money from one of these sources, no money will be budgeted to allow repayment of them. That means you will not have the money to repay them, or will not have the money to pay for something else vital, or will not have the money to make your trust deeds contribution.

It’s a bad situation that can quickly spiral out of control and threaten to make trust deeds unsustainable. The failure of Scottish trust deeds can lead to bankruptcy or your being reunited with your debts having lost the payments already made to the trust deed (which may have been swallowed up with the trust deeds fees).

What To Do If You Need To Borrow Money During Your Trust Deed?

Quite often our trust deeds advice team hear from enquirers that they need to access cash quickly to deal with emergencies, perhaps related to vehicle or home repairs for example.

Our advice is always to get in touch with your trust deed firm and tell them about the problem that you have. If there is a genuine emergency, for example your car needs major repairs and you rely on it to commute to work, your trustee may well allow you to miss a payment, or reduce your payments temporarily, in order that the repairs can be done.

What’s the alternative? You could take out a payday loan, but a few weeks later you’re going to have to find a much larger amount than you borrowed to repay them. Where will that money come from if you haven’t got it today and your future budget is limited?

Scottish trust deeds don’t prevent people from applying for credit, but that doesn’t mean that using new unsecured credit is anything other than a very risky thing to do.

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Wylie & Bisset Grant Thornton

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