Everyone you owe a debt to will want you to pay off their debt first. Whatever your creditors (the one’s you owe the money to) want you to do, and whatever you would like to do, you must prioritise your debts.
You must do this for three reasons.
1) To maintain the basics of life: electricity, gas, water, a ‘roof over your head’ etc.
2) To avoid legal action, in particular, criminal legal action: an unpaid TV licence and/or court fine can (and will) lead to imprisonment.
3) To avoid removal of your chattels (removable possessions) by County Court bailiff or High Court sheriff.
Your priority debts are:
Gas, Electric and Water Rates
Maintenance (ex-partner and children)
Vat, Income Tax, National Insurance
Hire Purchase (goods on hire purchase cannot be repossessed without a court order if you have paid over a third of the total amount payable under the HP Agreement. If you have paid at least fifty percent, and there are no arrears (or you pay the arrears) you can hand back the goods without further payment. The goods must be in a ‘reasonable’ condition.
All other debts will have an equal rating. It is not uncommon for debtors (the one who owes the debt) to maintain full payment of a non-preferential debt in an attempt to keep open a line of credit, or pay a threatening creditor ‘or else’. If you do pay a non-preferential creditor in such a way you will not receive the support of your other creditors (which is crucial), and bankruptcy could follow. We will deal with an Income and Expenditure Statement in another article however the following is a brief outline concerning priority debts.
There are two ways to approach the payment of these debts:
First way – be in control, be prepared.
In advance, work out how much you will pay to each priority debt (you may have a small amount of money set aside for non-preferential debts). However, this figure should only represent a token gesture. Priority creditors will not agree to any significant amounts being paid to, say, maintain a telephone (unless you need this for an acceptable reason like health), a car on hire purchase (again, unless you have a real need). In fact, a preferential creditor would expect you to sell the car and/or any other substantial property that had equity (equity is money you have left after selling your property and paying off the credit company).
The amount you offer each creditor should reflect an obvious and relevant payment structure i.e. paying £12 per month on your TV licence will not impress the court that you are trying to offer £2 per month. Send each creditor a list of your debts, how much you will pay each of them, and list your income and expenditure. Tell them you need a chance to correct your situation and that you are completely committed to paying your debts. And that you will increase the payment as and when you can (i.e. when you pay off one creditor, you will have the discipline to increase the amount paid to the other creditors: recommended).
Second way – one problem at a time
You need to evaluate which preferential creditor/s pose the most immediate and/or biggest threat to your basic needs and/or liberty. At this stage there is no point in worrying about any other creditor. You must contact that creditor and agree the lowest amount they will let you pay. If you resolve the most serious problem, move on to the next creditor/s and again get the lowest payment arrangement you can get, and so on…
If one particular creditor is being uncooperative, offer what you think is fair, start paying that amount and tell them, that if after arranging payment with the other priority debts you have some money left, you will increase their payment.
Finally, priority creditors are set up to deal with debt problems. Talk to them, most will give you advice, all will give you a first chance. If you make an arrangement: stick to it. Make sure you only commit yourself to what you can afford. There is little point in calling a creditor and telling them you cannot make this month’s payment: you may not get a second chance