Since 2015 payments to Scottish trust deeds have been worked out using the Common Financial Tool. This tool is also used to work out payments into sequestration (bankruptcy) and debt arrangement schemes (DAS).
The Common Financial Tool has been introduced to improve consistency and fairness. Debtors and their families should benefit from being assigned sufficient money to be able to manage their household bills and other reasonable expenditure. Creditors should benefit by being paid what the debtor can reasonably afford to pay.
It is mandatory for advisers to use this tool when calculating payments into formal debt solutions in Scotland.
You will be asked to provide details of your income, your household bills, your other regular expenses, and also the assets that you own. In certain instances you might be asked to provide back-up to confirm these figures – for example payslips, bank statements and utility bills.
Certain types of expenditure are likely to be taken “as they are”. This includes bills that there is little or nothing that you can do to change.
Examples of this type of bill might include your mortgage or rent, utility bills and council tax. They are collectively known as “essential expenditure”. Only where a certain bill of this type is deemed to be clearly excessive will this type of expenditure be challenged. In practice this type of challenge is a rare event.
Most other types of expenditure are subject to guidelines. These expenditure guidelines assign varying maximum and minimum amounts which are deemed “reasonable” according to your family circumstances. For example, the food allowance will be higher for a couple than it is for an individual. Extra expenditure allowances are also built in to cover the costs of looking after dependent children.
These guideline figures aren’t published. The standard process is for you to inform your adviser of how much you (and your family) need to cover certain areas of expenditure. If the adviser believes that a figure you have provided is too high (or too low) they’ll discuss it with you further.
The guideline figures are regularly updated. They’re based on the Living Costs and Food Survey produced by the Office for National Statistics for the UK government. Your expenditure during a trust deed may well be limited to some extent, but you and your family should be able to manage financially on the expenditure allowances provided.
The vast majority of expenditure types are covered by the Common Financial Tool.
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 many others).
Some purchases are only made occasionally rather than every week or every month. It is important that expenditure allowance is made for these irregular purchases so that they also remain affordable in the future. Examples could include car repairs, car tax, and modest home upkeep. A monthly allowance may be included for these types of 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 that a second bank account is opened. These allowances can then be set aside every month and will be ready for when they’re needed.
When calculating a trust deed payment, all household income and expenditure will ideally 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 must then be divided between the two partners. This may involve a division of the surplus amount based upon the relative earnings of each individual. It might also be adjusted for specific expenditure items which are relevant to only one member of the household.
For example, if both partners earn the same amount they might each be considered to be entitled to 50% of the total surplus. This might be adjusted for individual expenditure however. An example might be if one partner had a particular medical need which involved regular expenditure.
If only one partner was signing a trust deed, they might pay their share to their trust deed, with the other partner keeping their share to spend as they choose.
If one partner earned twice as much as the other the situation might be different. It might be deemed to be reasonable that their income covers a larger proportion of the joint household bills. This process aims to ensure that each partner pays their fair share of the household expenditure, and that each partner can utilise their fair share of any surplus that’s left over.
It’s understood that on certain occasions a partner (who isn’t looking to enter any type of debt arrangement) may choose not to cooperate by refusing to provide their financial details to the debt adviser. This isn’t necessarily an issue; the adviser will use a slightly different method to assess how much their client should reasonably be asked to contribute towards their debts.
If your income varies substantially, your adviser will need to calculate a fair and sustainable income figure to use for your contribution calculation.
This might apply if you regularly receive overtime, bonuses, or commission.
In practice the adviser is likely to take an average looking back over a reasonable period of time. Depending upon the circumstances, a three month or twelve month period might be deemed appropriate.
If your income is seasonal by nature it’s important to discuss this with your adviser. It’s understood that certain types of work produce different income levels at different times of the year.
Self-employed people may be less able to readily evidence their true income level. Their income is also more likely to be variable.
If you are self-employed it’s important to choose an adviser with experience of handling this much more complex type of work. They should be able to work with you in the production of a “business budget sheet”. This will help to calculate your payment into a trust deed or an alternative debt solution. Your accountant (if you have one) may also wish to contribute to this process.
All benefits will be taken into account when calculating a payment into a formal debt solution using the Common Financial Tool. You will need to provide details about any benefits that you receive.
Certain types of benefits are paid to cover extra costs. Examples include Disability Living Allowance, Carer’s Allowance or Personal Independence Payments. Be ready to explain to your adviser exactly what these extra costs are so that they are properly integrated into the calculation of your payment. You should be left with enough money to cover these extra needs.
In terms of protected trust deeds and sequestration, your monthly payment will be capped at the level of your earned income. Your contribution into the debt arrangement cannot be fully or partly funded by money from benefits (even though they’re still used to calculate your disposable income).
Some people have particular important needs that sit outside of the usual expenditure guidelines. This might apply if you experience certain types of health challenges for example.
Your adviser is able to put forward figures that exceed the usual expenditure allowance guidelines if this is the case. They’ll need a full explanation from you and may request some additional documentation as evidence. This then enables them to document an exception and to put forward a good case for acceptance on your behalf.
For further information about expenditure guidelines and the Common Financial Tool you could:
Get in touch using one of the contact forms on this site.
Call our qualified debt advisers on 0141 2490416.
Ask the personal insolvency experts on our forum.