In the story, when the peddler’s true identity is revealed, he is shown to have stolen money from the ironmaster. However, the ironmaster later realizes his mistake and treats him with kindness. The peddler is moved by the ironmaster's compassion and kindness, and this changes his outlook on life. He realizes the value of honesty and decides to reform himself. He no longer wants to live a life of deception and instead chooses to be a better person, leading to his reformation.
Final Answer:
The rat-trap peddler’s reformation happens when his true identity is revealed, and he is shown compassion by the ironmaster, which changes his attitude toward life and inspires him to live honestly.