A Protected Trust Deed is designed to simplify unmanageable debt by bringing multiple liabilities together into one affordable monthly payment. For many people, this structure provides clarity, protection, and a realistic route out of debt. However, not all debts are treated in the same way, and car finance is one of the areas that often causes confusion.
This article explains which debts can be included in a Protected Trust Deed, how different types of car finance are treated, and what this means for keeping your vehicle during the arrangement.
What debts can be included in a Protected Trust Deed?
One of the key benefits of a Protected Trust Deed is its flexibility in dealing with unsecured debt. Most everyday consumer debts can be included, allowing you to make a single monthly contribution instead of juggling multiple payments.
Common debts that can be incorporated include:
- Credit card debt
- Payday loans
- Store card balances
- Personal loans
- Council tax arrears
- Car parking charges
- Rent arrears
- Utility arrears
- Catalogue accounts
- Overdrafts
Once the Trust Deed becomes protected, creditors included in the arrangement are legally bound by it. Interest and charges are frozen, and creditors can no longer chase you directly. At the end of the Trust Deed, any remaining unsecured debt included in it is written off.
Why car finance is treated differently
When it comes to car finance, the position depends entirely on the type of agreement you have.
The key distinction is whether the debt is unsecured or secured. This determines whether it can be included in the Trust Deed itself, or whether it is dealt with separately as part of your household budget.
Understanding this difference is crucial before entering into a Trust Deed.
Personal loans used to buy a car
If you used a personal loan to buy your car, this is classed as unsecured debt.
From a legal perspective, it does not matter what the money was used for. What matters is the structure of the agreement. A standard personal loan from a bank or lender is not tied to the vehicle as security.
Because of this, personal loans used to purchase a car can usually be included in a Protected Trust Deed in the same way as any other unsecured loan. Once included, the loan is dealt with through your single monthly Trust Deed payment, and any remaining balance is written off at the end of the arrangement.
This is often a relief for people whose car was bought outright using borrowed funds.
Hire Purchase agreements and secured car finance
Hire Purchase agreements are different.
With Hire Purchase, the car is used as security for the debt. You do not fully own the vehicle until the final payment is made. Because the lender has a legal claim over the asset, this type of finance is classed as secured debt.
Secured debts cannot be included in a Protected Trust Deed. Other examples of secured debt include mortgages and certain logbook loans.
This means that a Hire Purchase agreement cannot be written into the Trust Deed and will not be written off at the end.
Does that mean car finance is ignored?
No. This is a common misunderstanding.
Although Hire Purchase debt cannot be included in the Trust Deed, it is still taken into account when your finances are assessed.
When your Trustee calculates your affordable monthly contribution, they look at your full income and essential living costs. This includes reasonable car finance payments, as long as they are not excessive.
In practical terms, this means that the monthly payment for your Hire Purchase agreement is usually treated as an essential expense, similar to rent, utilities, or travel costs.
As a result, you are often able to keep your car and continue making payments while the Trust Deed is in place.
Keeping your car during a Trust Deed
One of the major advantages of a Protected Trust Deed compared to sequestration is the ability to retain essential assets.
In most cases, you are allowed to keep your car, particularly if it is needed for work, childcare, or daily living. The key considerations are the value of the vehicle and whether it is reasonable for your circumstances.
How car value and equity are assessed
Equity is the amount you would receive if the car were sold, after settling any outstanding finance.
If your car has equity of less than £3,000, it is unlikely to be an issue. In these cases, Trustees and creditors generally accept that the vehicle is a reasonable and necessary asset.
If the car has equity of £3,000 or more, creditors may ask for that value to be introduced into the Trust Deed.
This does not usually mean selling the car outright.
Instead, you may be asked to release the equity by trading the vehicle in for a cheaper model and paying the difference into the Trust Deed. This allows you to retain access to a vehicle while ensuring creditors receive fair value.
What if the car is on Hire Purchase?
If the car is on Hire Purchase, equity is assessed differently because you do not legally own the vehicle until the agreement ends.
In many cases, there is little or no equity during the early stages of Hire Purchase. This makes it more likely that you can keep the car without issue, provided the payments are affordable.
However, if the car is high value or the payments are excessive, your Trustee may ask you to consider alternative options.
What counts as excessive car finance?
Trustees are required to balance your needs with fairness to creditors.
A modest car with reasonable monthly payments is rarely a problem. High value vehicles, luxury models, or very high monthly finance costs are more likely to be challenged.
If the car finance payment is considered excessive, you may be asked to reduce costs by changing vehicle, renegotiating the agreement, or exploring alternative transport options.
The focus is always on necessity rather than preference.
What happens if you stop paying car finance?
If your Hire Purchase payments fall into arrears, the lender may have the right to repossess the vehicle.
Because the agreement is not included in the Trust Deed, the lender is not bound by it in the same way unsecured creditors are. This makes it important to keep car finance payments up to date throughout the arrangement.
If you are struggling to maintain payments, you should speak to your Trustee as soon as possible. Early advice can help prevent bigger problems later.
Why this matters when choosing a Trust Deed
Understanding how car finance is treated can help you decide whether a Protected Trust Deed is the right solution for you.
For people who rely on a vehicle for work or family life, the ability to keep a car is often a deciding factor. In many cases, a Trust Deed offers a practical balance between dealing with debt and maintaining everyday stability.
However, every situation is different. The type of car finance you have, the value of the vehicle, and your overall budget all matter.
Conclusion
Before entering into a Protected Trust Deed, it is essential to discuss your car finance in detail with an adviser or Insolvency Practitioner.
They can explain how your specific agreement will be treated, whether your car is likely to be affected, and what options are available if changes are needed.
A Trust Deed should reduce stress, not add uncertainty. With the right advice, it is often possible to deal with debt effectively while keeping the practical tools you need to move forward.
