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How to prioritise your debts

In the world of finance not all debts are equal. In this sector they are often referred to as priority and non-priority debts. As these names suggest this does mean that some debts are simply more important than others. So, does this make a difference to the money that you owe? Well, it could well do, depending on your circumstances. Not being able to pay a priority debt could get you into trouble quicker and with more serious consequences than not paying a non-priority one. Let’s take a look at how debts are ranked and what impact this could have on your life if you cannot pay them back when you need to.

What are priority debts?

Priority debts, as their name suggests, are debts that should be paid before all other debts. These are not debts that you can skip payments on as you like as failure to meet your commitments here can lead to serious courses of action that could see you:
  • Prosecuted (and in the worst case scenario sent to prison).

  • Lose your home.

  • Have your goods repossessed.

  • Lose access to essential utilities such as gas and electricity.

  • Declared bankrupt against your will

The main priority debts include:
  • Mortgages

  • Rent

  • Any loans secured on your home

  • Council Tax

  • Utility bills (i.e. gas, electricity and water)

  • Child support payments

  • Hire Purchase agreements

  • Court Fines

  • Taxes

  • Telephone charges

What are non-priority debts?

Although failure to meet your commitments to non-priority debts may not be treated as seriously as it will be for priority debts, you do need to bear in mind that action can be taken if you fail to meet your repayment commitments. You can, for example, be:
  • Taken to court so that your creditors can recover their money.

  • Have your goods repossessed.

  • Declared bankrupt against your will.

  • Put in danger of losing your home even if the money you owe wasn’t secured against it.

The main non-priority debts include:
  • Unsecured loans and finance.

  • Credit cards and store cards

  • Overdrafts

  • Arrears owed to catalogue companies.

  • Money that you have borrowed from a family member or from a friend.

What action can my creditors take with priority debts?

If you fail to make timely repayments according to the schedule you agreed with your creditors for priority debts then there are specific courses of action that they can take to recover their money. The action taken here will depend on your situation, your debts and the type of debt/creditor with whom you are dealing. Let’s take a look at how getting into repayment difficulties could impact on you here:
  • Mortgages: if you get into arrears or default on your mortgage repayments then your lender ultimately has the right to have your home repossessed. This is done with a view to re-selling the property so that the lender can recoup the money that you owe them. If the money that they make here does not cover all the money that you owe them then the lender can continue to chase you for the shortfall for up to 12 years. This shortfall, however, will then be viewed as a non-priority debt.

  • Rent: if you fail to pay your rent then your landlord can take action to have you evicted from your home. This may involve a court order but in certain cases your landlord can have you evicted without one. This depends on the type of tenancy agreement that you have.

  • Secured loans: if you have taken out loans that are secured on your home then you have given the lender a ‘charge’ on your property. If you do not meet your repayment commitments to the lender then they can apply to get their money back through your property which could see your home repossessed.

  • Council Tax: if you do not pay your Council Tax then your local authority can apply for a Liability Order which tells you that you must pay all that you owe them as well as their costs. These costs can be legally taken from your wages or your benefits. Alternatively you could see your good repossessed by bailiffs to cover what you owe or could be forced into bankruptcy. In extreme cases you could be prosecuted for non-payment and could be given a jail sentence.

  • Utility bills: if you do not pay your utility bills then your providers can have your services disconnected. This is not usually the case with water suppliers, however, who are not allowed to disconnect you for non-payment and who will generally have to take you to court instead. Bear in mind that suppliers have to give you notice in writing before they disconnect your services in these circumstances.

  • Child support: the non-payment of child support is taken very seriously and there are a variety of measures that may be taken by the CSA in this instance. They may, for example, take you to court (either to recover the money or with a view to a custodial sentence) and they can also have arrears deducted from your wages at source. Other measures that can be taken here include the repossession of goods by bailiffs.

  • Hire purchase agreements: if you cannot meet your commitments to an HP agreement then the company you’re dealing with can either take back the goods you purchased or apply to the courts to get them back. The options here differ because you do not actually own the goods you agree to buy until you have paid for them in full. Generally, if you have paid back more than a third of your agreement then the HP company will have to go through the courts to recover their goods. If you’ve paid back less than a third then, in certain circumstances, they don’t need to get a court order to get their goods back. So, for example, if you have purchased a car on HP and default on your agreement before you’ve paid off a third then the HP company can take the car from a public place without the need for a court order. Even if the HP company takes back the item you purchased you may still owe them more money and they can pursue you for this.

  • Court fines: the legal system can take action against you if you fail to pay any your fines. They can, for example, have them deducted straight from your wages or benefits. In certain circumstances they can also arrange for bailiffs to repossess your assets to recover the money that you owe. You may also put yourself at risk of being arrested and convicted for non- payment of these kinds of fines.

  • Taxes: if you don’t pay your taxes then you could run the risk of being prosecuted and given a custodial sentence in the worst case scenario. You could also have your assets repossessed by court order/bailiffs and have a County Court Judgement raised against your name which will impair your credit record. Not paying your debts here could also lead to your being declared bankrupt.

  • Phone bills: if you do not pay your phone bills then you could have your service disconnected. The phone supplier could then take court action against you to recover their money.

What action can my creditors take with non-priority debts?

Although your creditors may not take such severe action against you if you don’t meet your payment commitments for non-priority debts there are still a variety of measures that they can take. These could all have significant effects on your lifestyle and credit history. In most cases the action that your creditors will take with non-priority debts could result in:
  • Court action: if you do not meet your commitments here then your creditors can apply to the courts to have a County Court Judgement (CCJ) levied against you to force you to repay what you owe as well as additional costs. This CCJ will show up on your credit history and could make it really difficult for you to get credit in the future.

  • Attachment of Earnings Orders: if you don’t pay back what you owe according to your CCJ schedule then your creditors can ask for the sums to be deducted at source out of your wages or benefits.

  • Charging Orders: although unsecured finance doesn’t originally use your home as security, failure to pay unsecured debts could put your home at risk. Here, the creditor can apply for a Charging Order to have your borrowings repaid when your home is sold. If they also apply for an Order of Sale then this could lead to you having your home repossessed and sold to give them their money back more quickly.

  • Repossession/bailiffs: your creditors can also arrange to have your assets repossessed with the approval of the courts via a Warrant of Execution. This could see bailiffs coming into your home to take away your possessions.

  • Bankruptcy: in certain cases your creditors may have you declared bankrupt to get their money back that way.

You could see any/all of these measures taken for any kind of non-priority debt.

What happens if I have problems making repayments?

The vital thing to remember here is that you have rights and you will usually be given plenty of opportunities to sort out your debts before any of these measures are taken. Talk to any debt advisory specialist and they will all tell you the same thing – take action before it is taken against you, especially when it comes to dealing with priority debts.

The point here is that you really do need to talk to creditors before the situation gets so bad that they have to take legal action to recover their money. In most cases creditors will be open-minded about helping you out here and there are various ways that you take to can ease the pressure whilst you get back on track. But, none of these ways will be available to you if you don’t tell your creditors that you are having payment/repayment problems in the first place

What kinds of solutions might I be offered here?

Creditors can offer a range of other options that could help you sort out your accounts with them. Common options here include:
  • Instalment payments (both for ongoing commitments and for arrears).

  • Repayment breaks or holidays.

  • Short-term payment reductions.

  • Switching to short term interest only payments.

  • Extension of loan length to reduce payment commitments.

Most creditors will take a reasonable stance here. All they want, at the end of the day, is a commitment from you that you are trying to pay them back. After all, recovering debts can be a costly business for them and taking you to court or having you declared bankrupt is a last resort for most companies.

It is important to remember, however, that any agreement that you enter into here should be one that you can commit to. Make sure that you can actually afford to fulfil your financial obligations with any deal you are offered and make all necessary payments on time. If your problems with debts are such that talking to your creditors isn’t a good enough solution then you may need to look at other options to help you out. If you are unsure what steps to take next then you can get free and confidential advice from the Citizens Advice Bureau (www.adviceguide.org.uk) or the Consumer Credit Counselling Service (www.cccs.co.uk).
| Creditors Agreement to DPM | Prioritise Debts | Council tax payments | Student loans repayment | Add arrears to your mortgage | Debt Relief Order | Composition order |
| Debt Management Case Study | Walking Away From Debt | Are debts ever out of date | Facing a lifetime of debt | Paying for Debt Management Advice | Non-profit Debt Advice |