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.