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Saving and Trust Deeds in Scotland

Updated: 11th October 2016

In this article we discuss saving before, during, and after protected trust deeds in Scotland. What happens to savings you own when you sign a trust deed? Can you save during your trust deed? Why is it so important to put together a savings plan once you have been discharged?

Savings When You First Sign Your Trust Deed

When you sign a trust deed in Scotland your assets “vest” in your trustee. Assets typically include things like your home (if you’re a homeowner and you have equity) or your car (if it is worth more than £3000). Most people facing personal insolvency have already spent any cash savings that they had, but if there was money in savings accounts this will be treated as an asset. Assets that “vest” with a trustee are realised to help repay the creditors.

This means that cash in your savings accounts will need to be paid into the trust deed once it had been signed. This does not apply to cash in your current account which is needed to cover that month’s bills and other reasonable expenditure.

Saving During Your Trust Deed

An analysis is done of your income and expenditure to work out your monthly trust deed payment. Allowances for various areas of expenditure will be assigned to you. In a fairly recent development, it’s now possible to receive an explicit savings allowance (a “contingency” allowance) limited to 10% of your disposable income up to a maximum of £20 per month..

Some irregular expenses will be included in your allowances as well. Car owners will need to service and MOT their vehicles from time to time for example. Clothing will need to be purchased occasionally. Your allowances for irregular spending should be saved every month, ideally into a separate account. By doing so you’ll have access to saved cash when the need arises.

Most trust deed providers will therefore be reasonable about modest levels of saving, though there may be some variance in their attitude as can be seen on this forum thread. If you’re managing to save a fairly large amount of money each month, your trustee might conclude that you can afford to pay more into your trust deed.  

Saving An Emergency Cash Fund After Being Discharged

Being discharged from a trust deed in Scotland can gift you a unique opportunity to create future financial stability and resilience. The trust deed payment, often hundreds of pounds each month, will be available for different purposes.

It will obviously be tempting to relax your spending after living on a tight budget for some years. That’s entirely understandable, but at the same time some of the cash can also be assigned to a regular savings plan.

By setting aside a monthly amount for a savings account you’ll quickly build up a decent emergency cash savings fund. Financial advisers suggest saving up enough to cover all of your essential expenditure for a period lasting between three and six months. This emergency fund will be there if and when you need it, meaning you’re much less likely to have to borrow heavily again in the event that something unexpected goes wrong.

Where should you save? There are many options but joining a credit union might be one good idea. As well as putting together a cash reserve, you’ll be able to restore access to affordable credit in the future.

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