Borrowing money when you’re already deeply in debt requires careful consideration, and consultation with your trustee, as there are various factors associated with further borrowing in this situation that can make you vulnerable to court action.
One factor is your adverse credit record that does make borrowing difficult whilst you’re in a trust deed, but you may find some organisations that are willing to lend. In fact, if you’re a property owner, it could be a requirement that you release equity for your creditors at some point.
Your trust deed monthly contribution is calculated after reasonable living expenses have been deducted from your income. These costs typically include mortgage or rent payments, utility bills, HP car finance, mobile phone, and other contracts necessary for day-to-day life.
What isn’t accounted for is repayment to any potential new borrowing or credit, meaning that once your financial contribution to the trust deed has been made, there is limited cash left over each month.
In this scenario, if you take on new debt you may have to take action to avoid seriously worsening your financial situation – going without one of the items in your living expenses budget, for example, missing repayments to the new borrowing, or even falling behind on trust deed payments, simply to make ends meet.
Lenders rely heavily on the information contained in an applicant’s credit file to determine the risk of default on the loan. They may simply refuse your application on the grounds that you’re already involved in a formal debt procedure.
If they are willing to let you borrow money there’s likely to be little product choice, and unfavourable lending terms potentially including inflated rates of interest or higher deposits in the case of a mortgage.
Any new credit or borrowing obtained during the trust deed term won’t form part of the agreement. You could jeopardise the success of the trust deed if you find you cannot keep up repayments due to the extra financial pressure of a new loan.
Your debt situation can easily snowball again, and if the trust deed fails it leaves you open to sequestration by creditors included in the agreement. This means you could ultimately be forced into bankruptcy and lose your assets, including property.
The new creditor is able to take the normal course of action in recovering their debt if you fall behind with repayments. This includes applying fees and charges for each unpaid instalment, and the subsequent debt spiral, the use of debt collectors, and potentially court action. If you need additional money urgently, there are other ways to deal with the situation without leaving yourself open to sequestration.
If you need money urgently for an unexpected expense such as house or car repairs, you should contact your trustee. There is flexibility inherent in a trust deed and you may be able to miss a payment without threatening its success, or reduce your monthly contribution for a while so you can afford the repairs.
Scotland Debt Solutions has been helping Scottish residents to escape debt since 1989. To find out more about trust deeds and how they might help you, please contact one of our expert team. We offer free consultations and work from five offices around Scotland.
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Sequestration typically lasts for a period of 12 months, although if you’re also paying a Debtor Contribution Order (DCO), repayments can continue for a further three years after discharge.
Our Scottish based team can help advise you on your debt problems.