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.
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.
