Priority & Non-Priority Debts

Not all debts are created equally. This article looks at the differences between priority and non-priority debts. The distinction is incredibly important.

Non-priority debts are those debts for which creditors (the people to whom you owe money) have far less power to enforce. Usually such creditors will have to pursue the debt through the courts if they wish to enforce them.

Whether priority or non-priority, debts should NEVER be ignored. If you are suffering financial hardship, it is imperative that all creditors are informed of this. 


Priority debts
Priority debts are so-named because repaying these debts needs to come before anything else. Such priority debts often have dire consequences such as the loss of utilities, repossession of your property, or even imprisonment.
 
Priority debts must be paid, and the consequences for not doing so can - as mentioned above - be severe. If you cannot afford to make payments in full, it is vitally important that the creditor is contacted and informed of your financial circumstances. It will usually be possible to arrange for a lower monthly payment.

So what types of debts are priority debts? Priority debts include (but are not necessarily limited to):

• Mortgage payments.
• Rent arrears.
• Secured loans.
• Council tax arrears.
• Income tax and/or VAT arrears.
• Utilities arrears (other than water rates).
• Fines imposed by the magistrates' court.
• Child support / child maintenance arrears.
  

Clicking on each link above will take you to a further page which looks at the action you could take with regard to each type of debt. 

Remember, the general rule is that a priority debt is defined its potential consequences. The creditors that shout the loudest aren't always the creditors with the most power.


Non-priority debts
Non-priority debts are those which don't fall into the definition of priority-debts and include things such as:

• Unsecured loans.
• Credit cards.
• Store cards.
• Catalog debts.
  

Make no mistake that non-priority debts are, non-the-less, important and must not be ignored. However, non-priority creditors have to go to much time and expense if they wish to claw back money they are owed. For this reason, it is more likely that non-priority creditors will be amenable to accepting lower repayments.

Conclusion

If you don't have enough money to go around, it's important to know which creditors you should be giving priority to paying. If you fall into financial difficulty, it's important that ALL creditors are informed immediately so that negotiations can begin.

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NB: If you are in severe financial difficulty and feel overwhelmed by your debts, visit your local Citizens' Advice Bureau. Many CAB's receive special funding to provide debt caseworkers who can deal with your matter from start to finish. Further, the CAB and organizations like it have greater bargaining power when it comes to negotiating lower payments.

Dealing with priority debts: mortgage arrears

YOUR PROPERTY CAN BE REPOSSESSED IF YOU DO NOT PAY YOUR MORTGAGE.

If you're in arrears with mortgage repayments, you should contact your lender as soon as possible.


Making contact
Though it is becoming increasingly rare, it is worth checking if you have mortgage protection insurance: this will usually cover periods when you are unable to make payments due to circumstances outside of your control.

When you contact your lender, you should explain why you have failed to make your payments (the circumstances that have led to your financial difficulties) and how you intend to pay them (for example, paying smaller instalments).

You may be able to negotiate with your bank to make smaller monthly payments. Alternatively, you could suggest that the amount of the arrears is added to the original sum borrowed and, thus, becomes part of the amount borrowed (however, this would have the effect of increasing your monthly repayments to take account of the additional sum).

Some lenders will impose financial penalties for late payments, or ongoing penalties over the term that payments are in arrears. If this is the case, you should request that your lender waive these charges for the time being.


Additional considerations
If you are in receipt of any of the following benefits, you may be entitled for payments to be made on your mortgage interest. 

• Job Seekers' Allowance
• Income Support
• Guarantee credit of Pension Credit

Note that only the interest is paid by such benefits, and is paid directly to the lender.

Dealing with priority debts: rent arrears

YOU CAN BE EVICTED FROM YOUR PROPERTY IF YOU DO NOT PAY YOUR RENT.

If you're in arrears with rent payments, you should contact your landlord as soon as possible.


Making contact
Local authorities and housing associations are known as 'Social Landlords'. Generally such landlords are more amenable to accept low and regular repayments to pay off rent arrears.

Private landlords may be less agreeable and your negotiating power may rely quite heavily upon your previous relationship with your landlord.

If you are in receipt of certain benefits as bullet-pointed below, you can arrange for these repayments to be deducted directly from your benefits (Third Party Deductions).

• Job Seekers' Allowance (Income Based)
• Income Support.
• Pension Credits.
  
  
  

Additional considerations
If your income is low, you may be eligible for Housing Benefit, which will help towards the cost of renting. You can obtain a claim-form from your local council or Job Centre. 
For more information on Housing Benefit, see Directgov. 

Dealing with priority debts: secured loans

YOUR SECURED ITEMS CAN BE REPOSSESSED IF YOU DO NOT PAY YOUR SECURED LOAN.

If you're in arrears with repayments for a secured loan (where the security is something other than a property), you should contact your lender as soon as possible.


Making contact
Though it is becoming increasingly rare, it is worth checking if you have payment protection insurance: this will usually cover periods when you are unable to make payments due to circumstances outside of your control.

When you contact your lender, you should explain why you have failed to make your payments (the circumstances that have led to your financial difficulties) and how you intend to pay them (for example, paying smaller instalments).

You may be able to negotiate with your bank to make smaller monthly payments. Alternatively, you could suggest that the amount of the arrears is added to the original sum borrowed and, thus, becomes part of the amount borrowed (however, this would have the effect of increasing your monthly repayments to take account of the additional sum).
 
Some lenders will impose financial penalties for late payments, or ongoing penalties over the term that payments are in arrears. If this is the case, you should request that your lender waive these charges for the time being.


Additional considerations
If you are in receipt of any of the following benefits, you may be entitled for payments to be made on your mortgage interest. 

• Job Seekers' Allowance
• Income Support
• Guarantee credit of Pension Credit 
  
  

Note that only the interest is paid by such benefits, and is paid directly to the lender.

Dealing with priority debts: Council Tax arrears

YOUR WAGES CAN BE GARNISHED, YOUR BELONGINGS CAN BE REPOSSESSED, AND YOU CAN EVEN BE IMPRISONED FOR UNREASONABLE FAILURE TO PAY YOUR COUNCIL TAX.

If you're in arrears with Council Tax payments, you should contact your local council as soon as possible.

Be aware that imprisonment is the last resort: it will only be employed if you are found guilty of 'wilful refusal' (aka, you intentionally fail to pay your council tax even though you are able) or 'culpable neglect' (aka, it's believed that you are only unable to pay because you are neglectful of your finances).

 
Making contact

You must make arrangements to repay. Typically repayment will be expected within the financial year (1st April to 31st March). In special cases where you are facing financial hardship that is beyond your control it may be possible to negotiate a longer repayment period.


Additional considerations

It is worth considering your eligibility for council tax discounts. If you are on a low income, live alone, or are disabled, you may be entitled to Council Tax benefit.

It is also worth checking to see if your property has been assigned to the correct Council Tax band. You can check your tax band against neighbouring properties on the Directgov website. If you believe that the tax band assigned to your property is too high, you can arrange for your Council Tax liability to be reassessed by the Valuation Office Agency. Be warned, however, that your tax band can be moved up as well as down, so be sure that the properties you are comparing with have a similar value. 

Dealing with priority debts: Income Tax and/or VAT arrears

THE HMRC OFTEN USES PRIVATE DEBT COLLECTION AGENCIES TO CHASE DEBTS.

Typically, this will only be relevant if you are self-employed. If you are in arrears for Income Tax and/or VAT, the relevant creditor will be the HMRC.


Making contact
You should contact the HMRC immediately. Interest will be added to the arrears. It may be possible to arrange for the arrears to be paid in instalments and, where you can prove financial hardship, for interest to be temporarily put on hold.


Additional considerations
It is important to check that your Income Tax liability has been correctly calculated. 

Dealing with priority debts: utilities arrears

YOUR SERVICES CAN BE CUT IF YOU FAIL TO PAY YOUR UTILITY BILLS.

If you're in arrears with utility bills, you should contact the affected service providers as soon as possible. Failure to do so may result in your service being cut off.


Making contact
Explain the circumstances of your financial difficulty. If these difficulties are only temporary, you can try to arrange for arrears to be paid off over a number of months. Alternatively, you could try to arrange for monthly payments to include a small element of your arrears.

With regard to certain utilities such as as gas or electricity, consider requesting a pre-payment meter. This will require you to pay for utilities, including arrears, before it is consumed. The use of a pre-payment meter will help you to better appreciate your fuel usage and will all but eliminate the risk of going into further debt on your utilities.


Additional considerations
If you are having difficulties budgeting, and are in receipt of the benefits bullet-pointed below, consider asking the DWP to make payments directly from your benefits (Third Party Deductions).

• Job Seekers' Allowance (Income Based)
• Income Support.
• Pension Credits.
  
  

If you feel that the utilities supplier you are with is too expensive and you are able to find a better deal elsewhere, you should consider price comparing and changing providers. Note, however, that changing providers does not release you from debts owed to your existing provider.

Dealing with priority debts: magistrates' fines

YOUR POSSESSIONS CAN BE REPOSSESSED IF YOU FAIL TO PAY MAGISTRATES' FINES.

If you're in arrears with utility bills, you should contact the affected service providers as soon as possible. Failure to do so may result in your service being cut off.


Making contact
If you re summoned to court, you should attend. You will be sent forms which you must complete and return. In particular, you will be given the opportunity to outline your financial circumstances. If a fine is imposed against you, you should request permission to pay in instalments given your financial circumstances.

Whether or not instalments are permitted, you will be ordered to pay the fine within a set time limit. If you are unable to meet this time limit, you can request a 'means enquiry'. This enquiry will take the form of a hearing (which you would have to attend) which will take account of your financial circumstances (whether or not the are different to when the fine was imposed) and a decision will be made as to how the fine should be paid.

 
Additional considerations
If you discover that bailiffs have been instructed, seek advice immediately! The CAB are often successful in obtaining a temporary freeze on recovery action while debt advice is sought provided you comply with their requirements. 

Dealing with priority debts: Child Support arrears

YOUR SALARY CAN BE GARNISHED, YOUR BELONGINGS CAN BE REPOSSESSED, YOU PROPERTY CAN BE PLACED UNDER A CHARGING ORDER, AND/OR FUNDS FROM A BANK ACCOUNT CAN BE SEIZED IF YOU FAIL TO PAY CHILD SUPPORT. 

If you're in arrears with making Child Support payments, you should contact the Child Support Agency as soon as possible.


Making contact
The purpose of contacting the Child Support Agency will be to reassess your financial circumstances and capabilities, and/or to negotiate how any arrears ought to be paid.


Additional considerations
If an order is made against you by the courts, you can apply for the court to consider your financial circumstances (which you will need to prove). The court may then, at its discretion:

• Write off arrears if it is satisfied that you fell into arrears through no fault or your own and, furthermore, you cannot afford to pay them; or
• Order that deductions are made directly from your salary (if you are in employment); or
• Direct a different method of payment such as direct debits; or
• Instruct bailiffs to seize your belongings (up to the relevant value); or