Vehicles and Protected Trust Deeds

If you own your car, it’s considered to be an asset. Trust deeds in Scotland take account of the assets you own and (in some cases) this can result in an extra liability for an payment.

A £3000 valuation threshold is applied to vehicles. A vehicle worth less than £3000 (that you reasonably need to keep) won’t lead to any extra payment liability. For cars worth more than £3000, a written plan is put in place which determines how that asset will be “realised” for the benefit of your creditors. Options to realise your asset might include:

• Extra monthly payments (at the end of your trust deed)

• A one-off payment from a third party (often a relative)

• Downgrading the vehicle before you start the trust deed

The asset threshold does not apply if you don’t own your car, van, or motorbike. This might apply if you’ve borrowed a vehicle from a family member or friend (and they can prove ownership) for example. You are also not the legal owner of your vehicle if it’s subject to a:

• Hire purchase agreement

• Conditional sale agreement

• Lease agreement

You may become the owner of a financed vehicle in the future if it becomes yours once you have fully repaid the finance. If you haven’t yet completed your trust deed, the £3000 valuation threshold would then apply to this vehicle. If it’s worth more than £3000 an extra payment may become due. This payment can be achieved using the same options mentioned above.

Personal loans are often used to buy cars, vans, and motorbikes. They’re not always secured upon the vehicle. Unsecured vehicle loans are included in your Scottish trust deed (just like any other qualifying debt like a credit card or overdraft). You’ll stop directly paying the loan and the lender has no legal right to repossess your vehicle. Because you’re the legal owner the vehicle is treated as an asset if it’s worth more than £3000.

If finance is secured upon your vehicle, you’ll keep making the payments. If you fail to make the payments due under the finance agreement then the vehicle may be repossessed. An allowance is added in your monthly budget to continue paying for the vehicle, provided that your monthly finance payment isn’t excessive and that you have a reasonable need to keep the car.

Some car finance providers include insolvency clauses in their credit contracts. Protected trust deeds in Scotland are a form of personal insolvency. If your contract includes an insolvency clause there is a risk of losing your car if you start a protected trust deed.

Check your vehicle finance agreement for insolvency clauses and discuss this matter with your appointed debt adviser. The good news is that many finance providers don’t enforce their insolvency clauses provided that you keep up with the payments. Your debt adviser may be able to identify (from their personal experience) whether this finance provider enforces insolvency clauses or not. The finance providers are also generally happy to provide you with this information if you contact them directly and ask them.

Some vehicle insurers view protected trust deeds and other types of personal insolvency as a risk factor. This can result in the addition of insolvency clauses into their policy agreements. A trust deed is a type of personal insolvency.

Always disclose your trust deed when you obtain or renew your vehicle insurance. This will help to protect you from rejected claims and/or legal exposure in the future. Comparison websites are unlikely to provide information about personal insolvency clauses, so always talk to the insurer directly before purchasing a policy you’ve found on a comparison website.

Some insurers may not offer monthly payment terms while you’re in a Scottish trust deed. We advise you to shop around because other insurers do continue to offer monthly payment terms.

It’s very important that you discuss the potential sale of a vehicle with your trustee before you proceed. It’s possible that your trustee will have an interest in the sale proceeds, meaning that you have to hand over the money to them.

If expensive car repairs become necessary, talk to your trustee. They may agree to suspend your monthly payment to help you to fund the repairs. However, your trust deed might get extended to catch up on any payments you agree to miss.

You may have a vehicle finance shortfall debt if you had a financed vehicle repossessed in the past. This could also occur if you previously handed back a financed vehicle before the credit agreement ended. Car finance shortfall debts are included in your trust deed just like any other qualifying debt.

What if your car or van gets repossessed after your trust deed begins? If the finance agreement began before you signed your trust deed, the shortfall debt is still included as a creditor. You will not need to make direct payment for this new debt as it’s covered by your trust deed.

Several options exist to get a new vehicle during your trust deed if necessary. Your trustee may agree to you getting a vehicle on finance. The interest cost is unfortunately likely to be very high due to your poor credit rating. The finance provider may also request prior written consent from your trustee.

A family member might be able to take out car finance for you. They can then lend you the vehicle (though your relative should first check that this is acceptable to the finance provider). You could repay the finance cost to your relative if your trustee agrees, the cost is reasonable, and you need a car.

A family member might instead purchase a vehicle for you to use. They should remain the legal owner or you’ll potentially have acquired an asset that’s of interest to your trustee. The relative lends the vehicle to you rather than gifting it you. You can still be the registered keeper on the V5 without being the vehicle’s legal owner.

Your credit rating will improve after discharge, but this is not immediate and your progress is likely to be gradual. Car finance options are available but they may still be expensive and restrictive. Better value options will become available as more time passes. This subject is covered in greater depth in Section (09) of our credit repair guide.

If you have a reasonable need, you can keep a car or van worth less than £3000 in bankruptcy. If your vehicle is worth more than £3000 you could be at risk of having to sell it to raise money for your creditors. Obtaining new car finance before you get discharged from bankruptcy may be impossible.

Full debt repayment solutions don’t take assets into account. This includes both DAS and DMP debt repayment plans. It does not matter if your vehicle is worth more than £3000 if you use either of these debt solutions. Be aware that the debt arrangement scheme and debt management plans will both damage your credit rating, so getting new vehicle finance may more difficult and more expensive.

The topic of vehicles and protected trust deeds does lead to many unique questions. If you cannot find the answer that you’re looking for in this article, we suggest that you ask the question in our forum. Debt advice and trust deed experts are available to answer your forum questions. You can also use our forum search function to find existing answers to people’s vehicle questions.

To find out whether you qualify for a trust deed, please contact us.

Our team of friendly experienced advisers will help you to identify a suitable debt solution. We can also answer any questions that you have regarding vehicles or any other assets that you own including your home. All debt advice is provided on a confidential basis.