Budgeting issues

This section provides information about how to complete an accurate CFS and deals with some of the most commonly asked questions when preparing a CFS.

  • Q:What is a CFS compliant offer?

    A:

    The following makes a CFS offer compliant:

    • The client’s expenditure falls within the trigger figures; or
    • If expenditure exceeds the trigger figures an explanation is provided in the notes section of the CFS summary sheet;
    • The CFS summary sheet is identical to the version on the MAT website (currently version 4); and
    • The CFS logos are used along with CFS sponsors' logos e.g. Money Advice Trust (MAT), the British Bankers’ Association (BBA) and the Finance & Leasing Association (FLA).

    You can view an example of the current CFS summary sheet (please note you should not use this to negotiate with creditors as a full CFS must be completed).

  • Q:Does all income and expenditure need to be verified for the CFS?

    A:

    Reasonable steps should be taken to verify a client’s income and regular outgoings when preparing the CFS. The Office of Fair Trading (OFT) Debt management guidance section 2.28 states that income must be verified by appropriate means and reasonable steps should be taken to verify regular outgoings.

  • Q:What should be considered when a client exceeds the trigger figure amounts?

    A:

    Some clients may exceed trigger figure amounts due to their household expenditure being affected by circumstances that they can not control. This could be due for example, to poor health, higher travelling distances to work or special dietary needs. In each case an explanation should be provided for the additional expenses incurred by the client in the notes accompanying the financial statement summary sheet.

  • Q:What if the CFS shows a deficit because the client's expenditure exceeds their income?

    A:

    If the client’s monthly outgoings are more than they receive in income, the following should be considered before submitting a deficit financial statement:

    • Explore all the avenues for maximizing the client’s income;
    • Discuss ways of reducing expenditure with the client where possible. The trigger figures can be used as a guide to review the client’s spending;
    • If the client has a valid reason for exceeding trigger figures then this should be explained in the notes accompanying the financial statement summary sheet and any letter(s) sent.

    Creditors will vary in how they deal with financial statements that show a deficit. Explanation notes should cover reasons for the deficit budget and what is being done to address the deficit. The explanation should include the likely timescales involved as a deficit budget is not likely to be sustainable in the long term.

  • Q:Is the CFS suitable for someone who is self-employed?

    A:

    Self-employed clients can use the CFS to negotiate with creditors, but the CFS does not include budgeting categories for business-related expenditure. The client will need to do a business budget sheet first to account for the costs of running their business. The client can then work out how much money they can ‘draw’ from their business and this amount can be included as income in the CFS. If the client does not have an accountant to prepare a business budget sheet, they can contact Business Debtline on 0800 197 6026 to get help. A business budget sheet can also be completed online. For more details visit the Business Debtline website.

  • Q:Does the client have to include their partner's income in the budget?

    A:

    A financial statement can be prepared based on the client’s sole income even if they have a partner. The budget should show the client’s contribution to the household expenses. This should be a fair amount of the actual household expenditure based on the client’s income. Third parties negotiating on behalf of the client should provide an explanation in the notes accompanying the financial statement and any covering letter(s) about how the financial statement has been prepared.

  • Q:How should income and outgoings treated on the CFS for a Debt Relief Order (DRO) application?

    A:

    When applying for a DRO the CFS needs to show all household income even though the DRO application is for the client only. If the client has a partner, the CFS needs to show joint income and expenditure, and any surplus income must then be split between them on an equitable share basis. This means that the client’s surplus income reflects the proportion of the income they bring in to the household.

    For example:

    A client and their partner have a joint income of £2,000 a month. The client earns £500, and their partner earns £1500. Their CFS shows they have a joint surplus income of £100.

    As the client earns one quarter of the household income, their share of the surplus income will be £25 (which is a quarter of the joint surplus income).

  • Q:Can a client budget for cigarettes and tobacco in the CFS?

    A:

    Offers of payment submitted to creditors using the CFS should be realistic and sustainable. For this reason smoking can be included in the budget as it is reasonable to treat this as an addiction. However, clients should be asked whether they can commit to reducing money spent on smoking where possible.

    Smoking costs should be included under ‘Housekeeping’. If the total housekeeping amount does not exceed the trigger figure for this category it should not be queried by creditors. The client may need to economise in another area covered by the housekeeping category to help balance out their smoking costs. If spending on cigarettes and tobacco is significant this may still lead to the trigger figure being exceeded. In these cases an explanation should be included in the notes accompanying the financial statement summary sheet as creditors vary in how they consider smoking related costs.

  • Q:How is a non-dependant shown in the CFS?

    A:

    A non-dependant is someone who lives in your house who is not your partner or a dependant child. A non-dependant could be a grown-up child or an elderly relative. You must show any contribution paid by a non-dependant to the household under ‘Other income’. Equally if any household expenditure includes a non-dependant, this must be explained to creditors in notes accompanying the financial statement summary sheet.

  • Q:How should Disability Living Allowance (DLA) or Attendance Allowance (AA) income be treated in the CFS?

    A:

    DLA or AA paid to a client should be included in the budget under ‘Benefits’. It is important to recognise that this money is paid to the client to cover any specific needs relating to their disability.

    Some clients may choose to use some of their disability benefit to repay debts. For most clients this money will be used for specific disability related costs and should be recorded in their expenditure. Disability related costs should be listed under ‘Adult care costs’where applicable. Costs relating to mobility needs should be included under ‘Travel’. An explanation should be provided in the notes accompanying the financial statement summary sheet where mobility costs exceed the travel trigger figure.

    If DLA is paid to a child, the same principles apply as above though costs should be shown under ‘Childcare costs’. As this expenditure category can also be used for child minder fees, nurseries etc, total childcare expenditure may be appear higher than average. In these cases an adviser should explain this in the notes accompanying the financial statement summary sheet and any covering letter(s) sent.

  • Q:What if the household receives Housing Benefit/Local Housing Allowance or Council Tax Rebate?

    A:

    The simplest way to deal with these benefits is to include the actual amount that the client is entitled to under ‘Benefits’, regardless of whether they physically receive this benefit income. Under expenditure the total amount of rent and Council Tax should be listed (this would be the amount due if Housing Benefit or Council Tax Rebate was not in payment).

  • Q:How should hire purchase (HP) or conditional sale (CS) items be treated in the CFS?

    A:

    The CFS has categories for HP/CS in the expenditure section. This allows HP or CS agreements to be included if they were taken out to buy essential items. Whether items bought on this type of credit agreement are essential will depend on the client's situation (for example, a car providing the only way of travelling to work would be deemed as essential). If an item is not essential, advice should be given on terminating the HP/CS agreement as creditors may refuse to accept this expenditure.

  • Q:What if the client wants to include two cars in their budget?

    A:

    When completing a CFS, the inclusion of two cars should be discussed with the client. If there is a good reason (for example, mobility needs due to disability or if two working adults need to travel to separate workplaces) this can be included in the budget. An explanation for this needs to be given in the notes accompanying the financial statement summary sheet.

  • Q:Can contributions to religious establishments be included in the CFS?

    A:

    The client’s budget should be realistic as failure to include all relevant expenditure would lead to offers of repayment not being sustainable.

    Any items of discretionary expenditure should be discussed with the client to see whether they can be flexible in the amount they contribute. Payments to religious establishments should be included in 'Other'. The client may exceed the trigger figure threshold for 'other expenditure' due to this. In these cases an explanation should be included in the notes accompanying the financial statement and in any covering letter(s) sent.

  • Q:How can the CFS help identify a client who may have a debt with a loan shark?

    A:

    Loan sharks are unlicensed and illegal money lenders. Loan sharks can threaten violence if debts are not repaid so a client might be too scared to discuss this with you.

    Signs to look out for include:

    • expenditure that goes over the CFS trigger figures without identifiable reasons;
    • a debt to a family member or friend, or with little or no paperwork;
    • a cash loan that grows, even with regular repayments; and/or
    • the client has had to give up items such as a passport, credit card or driving licence to the lender.

    If you suspect someone owes money to a loan shark, or if you would like more information about how to spot the signs, talk to the Illegal Money Lending Team.

    Your client may need support and help from the team to look at their options and decide what to do next.