Can you borrow more money when you’re already in a trust deed? Do you need to ask your trustee’s permission? And if you do borrow more and get into trouble again, can you add that debt to your existing trust deed? We explore what happens when you already have a protected trust deed and need to borrow again.
You’ve had a trust deed agreed and protected. Now you’re budgeting carefully and just about managing to live within your means and meet your monthly payments. But then an unexpected bill arrives. Perhaps the car needs an expensive repair. Perhaps it’s on its last legs and needs replacing. Can you borrow the money – and will your trust deed protect you if you can’t make the payments?
Can I borrow money whilst in a trust deed?
Theoretically it is possible, although there are a couple of major issues with this. The first is the likely cost of the credit. The second is the challenge a new debt presents for your existing trust deed payments.
The cost of borrowing
A trust deed affects your credit rating. Whilst it’s not impossible to find a lender who will provide some level of credit, it’s highly unlikely that loan will come cheap. Right now, someone with a good credit rating can enjoy a loan with an APR of 3-6%. For a bad rating, that interest rate rockets to around 50%.
In setting up your trust deed, your trustee will have already taken a close look at your income and outgoings and assessed how much you need to live on. Any additional borrowing will need to be repaid out of this amount – meaning you’ll have even less to live on. That increases the risk that you will fall behind on the repayment of your new debt, your trust deed repayments, or both.
Because of this – and because of the inflated cost – extra borrowing whilst in a trust deed can be dangerous.
Protecting your existing payments
A trustee’s job is to ensure that the terms of the trust deed are met. That includes ensuring that you are able to make the required repayments each month. That’s why, for any significant additional credit you’ll need the permission of the trustee.
Generally speaking, they’re unlikely to grant that permission, because if you have the money to service a new debt, you have (in theory at least) got enough money to be making additional payments to your trust deed.
There is some flexibility built into every trust deed, however, and trustees do have some discretion to approve a new form of credit in some instances. Where the expense is essential and the trustee is satisfied you can regularly make the payment, they may approve the borrowing.
So if you do need to borrow more money, talk to your trustee – but remember there may be alternatives to further credit (see below).
Can I add debt to a trust deed?
That depends on the debt. Generally speaking you can’t add additional new debt to a protected trust deed.
So, if you were to build up a credit card debt whilst still in a protected trust deed you couldn’t simply ‘roll’ the debt into the existing trust deed. Nor could you set up a new deed (see below).
There’s a significant knock on effect of that, because whilst your creditors can’t take action against you for any debt protected by a trust deed, they can chase repayment for debts that fall outside of the deed and they can legitimately add fees, charges and recovery costs to the debt.
As you already have a trust deed and other debt management methods (such as debt arrangement schemes or voluntary agreements) would be unlikely to succeed at this stage, the likely next step would be sequestration. That would effectively bring your trust deed to an end and restart the clock on bankruptcy proceedings which would then include all your debts – the new debts and the ones previously within your trust deed.
Is there any exception?
There is one potential exception to adding debt to a trust deed. Where a debt already existed when the trust deed was taken out but you forgot about it (perhaps, for example, it was a sofa bought under a buy now pay later deal) you may be able to add it to the protected trust deed. Talk to your trustee about this as soon as you become aware of the additional debt.
Can I have two protected trust deeds?
Not at the same time. It is possible to have one protected trust deed after another but there is a reluctance among trustees to approve second trust deeds once a first has expired (because the whole point of the first trust deed is to resolve debt problems once and for all).
Approval of a second trust deed is not guaranteed, therefore, but the trustee will look at your case on its own merits and may in some circumstances grant it.
What do I do if I need money urgently but can’t get credit?
Your trustee may refuse credit with your best interests in mind – to avoid you falling back into debt – but that doesn’t necessarily help when you have a large repair bill to pay. So if you need emergency money and you can’t get a loan, what can you do?
Fortunately, the trustee does have a little wiggle room – so you don’t have to resort to expensive and risky payday loans. Instead, get in touch with your trustee and explain the situation – they can’t help if they don’t know your predicament explore your options.
With trustee approval, these could be to…
- Miss a payment, giving you the chance to cover the unexpected bill and then return to your regular payment plan; or
- Reduce your payments for a period to give you a little extra money to cover the unexpected costs
If you’re struggling to manage your debt and want to explore your options for escaping it – for good – talk to us.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here