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Step 2 - Listing priorities
Some debts are more important than others. This is because if you fail to make the repayments on the money that you owe, the people who you owe money to (legally called a ‘creditor’) have certain powers to get their money back.
Contrary to popular belief, the importance (or ‘priority’) of the debt is not decided on the amount owed, but instead, the priority is based on the legal remedies that the creditor can enforce to recover the debt. The methods of enforcement used will depend on the type of debt owed.
Priority debts
A ‘priority debt’ is generally defined as a debt where non-payment could lead to the eventual loss of your liberty, your home, your essential services (fuel supply), and in some circumstances your essential goods.
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Examples of priority debts include:
- Mortgage arrears – are priority debts because non-payment could lead to the lender repossessing the property, evicting you (and your family) from the property, leaving you homeless - for more information on how to deal with your Mortgage arrears, please click here.
- Secured Loan arrears – are priority debts because, just like a mortgage, non-payment of any loans that have been secured against your home, could lead to the lender seeking repossession of the property, evicting you (and your family) from the property, leaving you homeless - for more information on how to deal with your Secured Loan arrears, please click here
- Rent arrears – are priority debts because non-payment could lead to possession action being taken by your landlord, evicting you (and your family) from the property, leaving you homeless - for more information on how to deal with your Rent arrears, please click here
- Council Tax/Community Charge arrears – are priority debts because non-payment could allow the Local Authority to use bailiffs to seize your property (goods), and could ultimately lead to imprisonment - for more information on how to deal with your Council Tax arrears, please click here
- Fines and maintenance payment arrears – are priority debts because non-payment of any unpaid fines, maintenance arrears or child support arrears, could lead to a ‘distress warrant’ being issued could allow bailiffs to seize your property (goods), and could ultimately lead to imprisonment (if a committal order is issued) - for more information on how to deal with your Fines and Maintenance arrears, please click here
- Gas and Electricity arrears – are priority debts because non-payment could lead to the supplier disconnecting the gas or electricity supply to your property. As the water supply cannot be disconnected, any Water Payment arrears you may owe are not considered to be priority debts - for more information on how to deal with your Gas and Electricity arrears, please click here
- Tax and National Insurance arrears – are priority debts as non-payment of Income Tax, VAT or National Insurance Contributions could lead to court action being taken against you and ultimately lead to imprisonment.
In certain circumstances, Hire Purchase (HP) and conditional sale agreements can also be considered as a priority debt. However, this will only be accepted as a priority if less than a third of the total price has been paid, or if the agreement was for essential goods.
It is important to point out, that if you are not currently in arrears with your priority creditors, you should ensure that you continue maintain the repayments to these creditors before dealing with any arrears that you may have with your non-priority creditors.
If you are in arrears to any of your priority creditors, we strongly recommend that you seek professional advice immediately – For more information on where to get FREE help and advice, please click here.
Non-priority debts
As the name suggests, a non-priority debt is any other debt where non-payment could not lead to the loss of your liberty, home or essential goods or services. However, just because the debt is not a priority, this does not mean that you should ignore these debts, the creditor still can still take legal action to recover their money – it’s just that your priority debts have first call on available income.
Examples of non-priority debts include:
- Bank overdrafts
- Unsecured personal loans
- Credit card debts
- Store card debts
- Social Fund loans
- Parking penalties
- Benefit overpayments
In most circumstances, Hire Purchase (HP) or conditional sale agreements will be considered as non-priority debts. However, if less than a third of the total price has been paid, or the agreement was for essential goods, then they may be considered as priority debts.
Dealing with your Creditors
It is important that any priority debts are dealt with first. Immediate contact should be made with the creditor to prevent any immediate action being taken that could lead to the loss of your home, liberty or essential goods or services, and to negotiate the terms of repayment (however, you do still have enough time to carry on reading through this guide!).
It doesn’t matter whether you have a priority debt of £75.00 and a non-priority debt of £5,000 – the priority debt must be dealt with first, even though the amount owed to the non-priority is a larger amount.
You should call your priority creditors straight away and make sure that you know who to pay, when to pay and how much to pay. If you are unable to make a definite offer of repayment, then you should ask whether you could have more time (such as two weeks or a month) to sort your finances out.
Once you know the details of how much you have to repay your priority creditors on a regular basis, you can use this information to complete your personal budget. For tips on how to draw up your personal budget, please click here
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