How your trust deed payment is worked out

Your trust deed payment is worked out using the Common Financial Tool, the method trustees and money advisers in Scotland must use to assess what someone can afford in a statutory debt solution. A trust deed must take the whole of your surplus income, which is the money left after your allowed household spending. No contribution can be taken from Universal Credit or other benefits, and your payment is reviewed at least once a year.

Because the same tool is used for trust deeds, bankruptcy and the Debt Arrangement Scheme, an adviser can use one budget to compare what each option might mean for you. Free, impartial help with a budget is available from the services in free debt advice in Scotland.

What is the Common Financial Tool?

The Common Financial Tool (CFT) is the set method, provided for in the Bankruptcy (Scotland) Act 2016, for assessing a person’s income, spending, assets and debts and working out a fair contribution. The Accountant in Bankruptcy (AiB), Scotland’s insolvency service, publishes guidance on how it must be used.

For a trust deed:

• the deed must require any contribution the CFT says you should pay
• the whole of your surplus income must go into the trust deed
• your trustee must confirm to AiB that the contribution follows the CFT
• AiB must be satisfied with it before registering the trust deed as protected

The CFT is not meant for the public to use on their own. Your trustee or a money adviser completes it with you.

How is your surplus income worked out?

In broad terms, the calculation looks like this:

1. Your income is recorded: wages or self-employed earnings, any pension already being paid to you, and benefits. If you live with a partner, full household income is usually looked at.
2. Your essential spending is recorded in full, with evidence (see the next section).
3. Your flexible spending is checked against trigger figures, benchmark amounts for things like phone, travel, housekeeping and other costs. AiB says these are reviewed each year and published in April.
4. A small contingency can be included: up to 10% of your surplus income, capped at £20 a month, for unexpected costs.
5. What is left is your surplus income. Where there is a partner, your contribution is based on your share of the household surplus, in proportion to your share of household income.

In a trust deed, your contribution is the whole of that surplus.

If you spend more than a trigger figure in one area, that is not automatically refused. You will need to explain why and provide evidence, and the trustee decides whether the amount is reasonable. AiB’s trust deed information document reminds you to include costs linked to a disability or to caring for others.

What counts as essential spending?

AiB’s CFT guidance treats these kinds of costs as essential spending, assessed on your actual bills rather than trigger figures:

• rent (including service charges and factor fees) or mortgage payments
• council tax
• utility bills, such as gas and electricity
• buildings and contents insurance
• other loans secured on your home
• child maintenance or child support you pay
• childcare and adult care costs
• hire purchase or conditional sale payments
• court fines you are paying
• pension and life insurance payments

Most of these need evidence, such as bills, statements or bank records. Having something on this list does not guarantee every amount will be accepted as reasonable, so bring paperwork to any assessment.

Other everyday costs, such as food and household essentials, travel, your phone, and internet or TV services, fall into the flexible categories that have trigger figures.

Can a trust deed take money from benefits?

No contribution can be taken from Universal Credit, tax credits or other social security benefits. This is set out in the Bankruptcy (Scotland) Act 2016 and AiB’s guidance.

Your benefits are still counted when your household budget is assessed, because they help pay for your living costs. If your income is made up only of benefits, a trust deed may not be workable, and an adviser may talk to you about other options such as the Minimal Asset Process. There is more in trust deeds and benefits.

How often is your payment reviewed?

Your trustee must review your income and spending regularly, and at least once a year. Your payment can go up or down at a review depending on what you can afford.

Between reviews, you must tell your trustee right away if your finances change. AiB guidance says that if your income goes up or your spending goes down, your contribution should rise in proportion. If your income falls, the trustee can reduce it. You must also tell your trustee about any money or property you receive in the 4 years after you sign, such as an inheritance. See if your circumstances change.

Remember that your payments cover the costs of the trust deed as well as your creditors. The trustee’s fees and AiB’s fees come out of what you pay. See what a trust deed costs.

What if you cannot keep up your payments?

Talk to your trustee as soon as you can. The law allows the payment period to be longer than 48 months where contributions have been missed, or by agreement. AiB says that if you stop paying without permission, your trustee might take money directly from your wages or extend your trust deed.

Before you sign, think carefully about whether you could keep up the payment for 4 years, including if your hours, health or household change. If you are unsure, an adviser can compare a trust deed with the Debt Arrangement Scheme, where interest, fees and charges are frozen, and with sequestration, which ends with discharge after 12 months although contributions can run for 48 months.

Official sources

• Bankruptcy (Scotland) Act 2016, section 168: contributions
• AiB Notes for Guidance 6.1: contributions in a protected trust deed
• AiB Notes for Guidance: Common Financial Tool
• AiB: about the Common Financial Tool
• AiB protected trust deed information document