Your car and a trust deed

A car you need for work or family reasons can often be kept in a trust deed, depending on what it is worth and what your trustee agrees. A car on hire purchase is treated differently, because it belongs to the finance company until you make the final payment. Your trustee will look at your car before the trust deed starts, so ask what they plan to do with it before you sign.

Can you keep your car in a trust deed?

When you grant (sign) a trust deed, the things you own pass to your trustee, the licensed insolvency practitioner who runs the trust deed. mygov.scot says your trustee will need to know the value of your assets, singling out homes and cars, and that they may need to be sold to pay your creditors. The trust deed information document from the Accountant in Bankruptcy (AiB), the public body that supervises trust deeds in Scotland, gives a car as an example of a valuable item you might need to sell.

In practice, AiB’s guidance on the Common Financial Tool (the official method used to work out your budget) asks trustees and money advisers to:

• get a valuation of your car from an independent, recognised source, such as a published price guide or a dealer, and explain any valuation that looks low
• confirm why you need the car. AiB gives examples such as travelling to work, a health condition that affects your mobility, living somewhere rural, and getting to shops and other services.

AiB’s guidance for trustees also says that items exempt from attachment (the things a creditor could not take through diligence) do not pass to the trustee, and its bankruptcy guidance lists a vehicle you reasonably need, worth up to £3,000, as one of those items. Ask your trustee to confirm how this applies to your car before you sign.

So there are two questions: how much the car is worth, and how much you need it. A modest car that you rely on is treated very differently from a valuable car you could manage without. If the trustee decides the car’s value should go to your creditors, it may have to be sold.

Because your car may form part of the trust estate, do not sell, swap or scrap it without your trustee’s agreement.

What happens to car finance in a trust deed?

It depends on the type of agreement. AiB’s guidance notes that people are not always sure which type of credit agreement they have, so find your paperwork and check.

Hire purchase and conditional sale

With hire purchase, Citizens Advice Scotland explains, you do not own the goods until you have paid in full, and you are not allowed to sell them without the lender’s permission. Conditional sale works in a similar way.

Because the car is not yet yours, AiB’s guidance deals with hire purchase as part of your budget. It says hire purchase and conditional sale payments may be allowed as part of your essential spending if the item is essential and the payments are reasonable. It gives a car that is your only way of getting to work as an example of something essential. If the payments are allowed, you carry on paying the finance company yourself, outside the trust deed. Your trustee should also check whether your agreement has a term that ends it if you enter an insolvency procedure.

If the trustee decides the car is not essential, or the payments are too high, they may not allow the payments in your budget. AiB’s guidance says you should then be pointed to consumer advice about your rights to end the agreement. Citizens Advice Scotland explains that you can end a hire purchase agreement in writing and return the goods, and that if you have already paid more than half the total price you usually will not have to pay any more. Ask your trustee how any amount still owed would be treated in your trust deed.

If you fall behind with hire purchase payments, the lender may be able to take the car back, usually with a court order.

Loans and other finance

mygov.scot includes unsecured car finance in its list of debts that can go into a trust deed. If you bought your car with a personal loan or a credit card, that debt can usually be included. The car itself is then yours, so it counts as an asset and your trustee will look at its value in the way described above.

Motability and other arrangements

If your car comes through the Motability scheme in exchange for your disability benefit, AiB’s guidance treats its cost as part of your disability-related spending. If you pay towards a car on someone else’s finance, or pay someone for the use of a car you will not own, AiB says those payments may be allowed if you can show them and explain why they are needed, as long as they are not more than you need.

What if you need a car for work?

Tell your trustee exactly why you need the car and keep evidence, such as your work pattern or the distance to your workplace. If your job depends on driving, see also will a trust deed affect my job?.

During the trust deed:

• Changing your car. Speak to your trustee first. New credit taken out after you sign is not covered by the trust deed, and mygov.scot says it may affect your ability to keep up your payments.
• Windfalls. Anything of value you gain in the first four years of your trust deed can be claimed for your creditors.
• Breakdowns and big bills. Tell your trustee if a repair or a change in your circumstances affects your budget. AiB’s guidance says your payment can be varied if your circumstances change.

How does this compare with other Scottish debt solutions?

The £3,000 figure comes from the rules on items exempt from attachment, which AiB applies across these solutions; check with your trustee or adviser how it applies to you. An independent review has recommended raising the MAP vehicle limit to £5,000, but this has not been made law. See the Minimal Asset Process, sequestration and the Debt Arrangement Scheme for the full picture.

A trust deed also has fees, affects your credit rating for six years, is listed on the public Register of Insolvencies, cannot include every debt, and if it fails, creditors can pursue you again and your trustee can petition for your sequestration. An adviser needs to look at your whole situation, including your car, before any option is chosen. Free, impartial debt advice is available.

Official sources

• mygov.scot: your assets in a trust deed
• mygov.scot: debts that can be included in a trust deed
• AiB Notes for Guidance, Common Financial Tool, section 4: assets and vehicles
• AiB Notes for Guidance, Common Financial Tool, section 6: essential spending, including hire purchase
• Citizens Advice Scotland: hire purchase and conditional sale
• AiB Notes for Guidance, bankruptcy: vehicles exempt from attachment (7.15)