Trust deeds and benefits

No part of a trust deed payment can come from Universal Credit or any other social security benefit. That rule is in section 181(6) of the Bankruptcy (Scotland) Act 2016. If benefits are your only income, a trust deed paid for by monthly contributions is not possible, and other options, including one with no fee, are designed for that situation.

Can I get a trust deed if I am on benefits?

It depends on what else you have. The law says your trustee may take account of any social security benefit you receive, but your contribution must not include any amount that comes from a benefit. Your trustee is the licensed insolvency practitioner who runs the trust deed and pays your creditors.

Guidance from the Accountant in Bankruptcy (AiB), the Scottish Government agency that supervises trust deeds, spells this out. No contribution can be taken from tax credits, Universal Credit, other social security benefits, or the payments made under Scotland’s own social security system, such as Adult Disability Payment and Scottish Child Payment. A contribution can only come from income over and above your benefits.

That leads to three broad situations:

• Benefits are your only income. Citizens Advice Scotland says you cannot set up a trust deed if your only income is from benefits. AiB’s guidance does mention trust deeds based only on assets, which may be possible if you own something of value (see below).
• You have benefits and other income, such as part-time wages. A contribution can only come from the other income, and AiB says it must never be more than your earned income.
• You get a disability or carer’s benefit, such as Personal Independence Payment or Carer’s Allowance. It cannot be used for contributions, but it is counted in your budget, along with the extra costs it helps you meet.

AiB’s full list is longer, and it says benefit names change over time. Scottish Welfare Fund grants are also protected: AiB says contributions should not be sought from them.

Why does my trustee still ask about my benefits?

Because your benefits help pay for your living costs, they affect how much of your other income is left over. Your budget is worked out with the Common Financial Tool, the method used across Scotland’s statutory debt solutions to set what someone can afford.

For example, suppose you earn £900 a month from part-time work and receive £400 of Universal Credit. The trustee looks at your whole budget of £1,300 against your allowed living costs. If money is left over, a contribution may be set, but it can come only from your earnings and can never be more than your £900 of earnings.

AiB’s guidance also says that where benefits are paid for specific needs, such as disability or caring, the related costs should be allowed for in your budget. Its key facts document for trust deeds reminds people to include costs for disabilities or caring for others.

What is an asset-based trust deed?

A trust deed normally involves monthly payments for at least 48 months. AiB’s guidance says this applies unless another arrangement has been agreed, and gives the example of a trust deed based on asset realisation only. In plain terms, the money for creditors comes from something you own, rather than from your income.

This might come up if your income is all benefits but you own something of value, such as savings or equity in a home (the value left after the mortgage is paid off). Things to understand:

• The trustee is expected to realise the full value of assets passed to them, so you could lose the asset or have to raise money against it.
• The trustee’s fees come out of what is realised, before creditors are paid.
• The effects on your credit rating and the public register are the same as any other trust deed.

Whether an asset-based trust deed is possible, or sensible compared with the options below, is something an adviser needs to look at with you. For homeowners, see your home and a trust deed.

What are the options if my income is mainly benefits?

Scotland has options built for people on low incomes. A money adviser can check which ones you qualify for.

If you need breathing room first, a moratorium on diligence gives you 6 months’ protection from creditor enforcement action while you get advice. It does not freeze interest.

A few details matter:

• MAP ignores a vehicle worth up to £3,000 if you reasonably need it. You are usually discharged after 6 months. Read about the Minimal Asset Process.
• The sequestration fee is also waived if you had Scottish Welfare Fund help in the last 3 months, or if the Common Financial Tool shows you have no surplus income. Read about sequestration in Scotland.
• Change may be coming. A 2026 review recommended raising the MAP debt limit, but no change has been made yet.

Informal options, such as a debt management plan with token payments, are also possible, but they are not legally binding.

What if my benefits change during a trust deed?

Tell your trustee straight away. mygov.scot lists your income or benefits going up or down as a change you must report.

• If you lose work and move on to benefits, your contribution needs to be reviewed. Because it cannot include benefit income, it may go down or stop. mygov.scot says your trustee may agree to reduce your payment or take a payment break.
• If you cannot see a way to keep going, the trustee can in some cases seek your early discharge for extenuating circumstances. See if your circumstances change.

Benefit overpayments. Housing Benefit overpayments included in a protected trust deed are written off on discharge, unless they were caused by fraud. For Universal Credit, tax credit and Social Fund overpayments, check with the adviser how they would be treated.

Free, impartial advice is available, and it is often the best first step if your income is mainly benefits. See free debt advice in Scotland.

Official sources

• Bankruptcy (Scotland) Act 2016, section 181 (contributions and social security benefits)
• AiB Notes for Guidance, protected trust deeds: section 2.13, Contributions
• AiB Notes for Guidance, Common Financial Tool: Appendix A, income sources
• Citizens Advice Scotland: Trust deeds in Scotland
• Bankruptcy (Scotland) Act 2016, section 2 (who can apply for bankruptcy, including MAP)