How to prioritise your debts

Certain debts need to be treated as priorities when you’re struggling, according to National Debtline. In this article, the charity takes a look at which debts are critical and offers advice and guidance.

Some debts are more important than others. The law gives different creditors different ways of getting their money back.

If you don’t act quickly, some creditors could: take away your home (called ‘repossession’ or ‘eviction’); cut off your gas or electricity (disconnection) - the law has changed and your water company cannot disconnect your water supply; send the bailiffs to take furniture from your home (called ‘distraint’); or ask the magistrates’ court to send you to prison.

Mortgage and rent arrears

If you fall behind with mortgage or rent payments, you could lose your home. As a result these debts are particularly important.

Community charge arrears

Community charge was replaced by Council Tax in April 1993. But you may still owe community charge from previous years as well as having a bill for Council Tax. If this applies to you, contact us for advice.

Magistrates’ court fines

The magistrates’ court may order you to pay a fine, for example, for a driving offence, for not having a television licence or for some other offence. You must treat a magistrates’ court fine as a priority debt because you could be sent to prison if you do not pay.

If you have been sued for a credit debt such as a loan or credit card, this would be in the county court and you cannot be sent to prison – treat it as a credit debt.

What type of court?

If you have been taken to court and are not sure which type of court it is, or whether it is a priority debt, contact us for advice.

The court should take your financial circumstances into account when they decide the instalments for paying the fine. You can be fined if you do not give the court details of your income and outgoings when ordered to do so.

The court can make deductions from your wages or from your benefits either when they set the fine or if you fall behind with payments. You must contact the court if you cannot afford to pay the amount the court fixes or you cannot pay because your circumstances have changed. They may be able to lower the amount.

If you have to go to a court hearing, take a copy of your personal budget with you.

What if I don’t pay?

If you are in arrears and do not make any arrangement with the court, they may try to do the following:

  • They will usually make a ‘collection order’ which allows a fines officer in the court to deal with your case.
  • They may make deductions from your wages under an attachment of earnings order. The amount they take will depend on how much you earn. They can do this when they set the fine or if you have fallen behind with payments.
  • They may make deductions of £5 a week from your Income Support, Pension Credit, Employment and Support Allowance, or income-based or contribution-based Jobseeker’s Allowance. They can do this when they set the fine or if you have fallen behind with payments.
  • Clamp a vehicle registered in your name.
  • Include the fine in a register which could affect your ability to get credit.
  • Order you to do unpaid work instead of paying the fine.
  • Increase the level of the fine by 50% if they think you have deliberately refused or neglected to pay.
  • They may use private bailiffs to seize goods and sell them. From July 2005, bailiffs collecting magistrates’ court fines have the power to break into your home, and other places, to take your goods, even if they have not been into your home before. They could take your car parked nearby.
    contact us for advice.
    From November 1999, bailiffs should not take a vehicle you need to get to work or for your business. They must leave clothing and basic household items. To make arrangements to pay, you will need to contact the bailiffs direct, since the court will no longer accept payments from you.
  • They can order you to be sent to prison. There will be a hearing before this happens, which you must go to with a copy of your personal budget. If you explain why you have not paid and make a new offer to pay by instalments, the court may suspend the arrest warrant.
  • The court should not send you to prison if you cannot afford to pay. They should only do so if they think you have ‘deliberately refused’ or ‘neglected’ to pay when you could have done so.

For a fact sheet on Magistrates’ court fines, call National Debtline on 0808 808 4000.

Parking penalty charges

Many local authorities have made parking offences non-criminal offences and enforce parking penalty charges through the Traffic Enforcement Centre in Northampton County Court.

There are special rules that apply if you have this type of parking penalty. You cannot be sent to prison but the local authority can ask the county court to use private bailiffs to try to recover the money. If you have a parking penalty charge, contact us for advice.

For a fact sheet on parking penalties in the county court, call National Debtline on 0808 808 4000.

Maintenance

You can be ordered to pay maintenance either by the court, as part of the separation or divorce process, or by the Child Maintenance and Enforcement Commission.

Maintenance through the court

If the court has ordered you to make regular payments, you can apply to reduce the payments if you cannot afford them. If you do not pay, the court can order you to go to a hearing to explain why you have not paid. They can give you more time to pay and, in very rare circumstances, they can write off the arrears.

If the court decides that you are deliberately not paying, they may try to: use bailiffs to seize goods and sell them; take payments direct from your wages; or order you to be sent to prison.

Maintenance arrears

If you are behind with your maintenance, contact the court immediately. Take a copy of your personal budget to any court hearings and explain why you cannot pay the full amount. The court may reduce the amount you have to pay.

Maintenance through the Child Support Agency

The Child Support Agency can decide what maintenance you should pay and then collect it. This is most likely if your ex-partner is on Income Support or income-based Jobseeker’s Allowance. They will decide the amount by using a set formula.

If you do not pay, the CSA can collect it direct from wages, Income Support, Pension Credit, Employment and Support Allowance, or Jobseeker’s Allowance (either income-based or contribution-based) and a range of other benefits, without a court order.

If they cannot do this, the CSA can ask the magistrates’ court for a ‘liability order’. When this has happened they may try to: use bailiffs to seize goods and sell them; get a legal charge on your property, which means your home could be sold if you do not pay; seize money from your bank account; ask the court to send you to prison for up to six weeks but the court will only do this if it thinks that you are deliberately not paying; or ask the court to take away your driving licence for up to two years.

If the CSA has threatened any of these things, contact us for advice.

Contact the CSA if you are in arrears

If you are in arrears, contact the CSA and try to make an arrangement to repay them. They may accept an amount on top of what you are already paying to clear the arrears over an extended period of time. If your circumstances change, you should tell the CSA immediately.

Social Fund loans

If you are on Income Support, Pension Credit, Employment and Support Allowance, or Jobseeker’s Allowance, you may have taken out a Social Fund loan, or be thinking about asking for one.

Repayments on the loan are taken out of your benefit before you get it. This could mean you will not have enough money to cover your normal outgoings. Think carefully before accepting a loan. You may be entitled to a Community Care Grant instead. This is not a loan and you do not have to pay it back.

Ask advice from a local advice centre or contact us.

If you already have a Social Fund loan and the amount being taken from your benefit is causing you hardship, contact the Social Fund officer at your local Department for Work and Pensions (DWP) office. Show them your personal budget sheet and explain the problems you are having.

The Social Fund officer may be able to reduce the weekly amount being taken out of your benefit. If they refuse, contact us for advice.

Paying back a Social Fund loan if you are not on benefits

If you are no longer on Income Support, Pension Credit, Employment and Support Allowance, or Jobseeker’s Allowance and still have a Social Fund loan, include it with your credit debts.

But be careful, the DWP can take an amount out of other benefits instead. These benefits include contribution-based Jobseeker’s Allowance, Incapacity Benefit or Employment and Support Allowance, Carers’ Allowance, retirement pensions, Maternity Allowance and bereavement  benefits. If this happens to you, contact us for advice.

Gas and electricity arrears

The gas and electricity companies can cut off your supply in a few weeks if you don’t pay them. No court is involved in this decision. It is important to contact them to make a payment arrangement as soon as you know you are going to have problems. Because of this, you should treat gas and electricity bills as a priority debt.

Read National Debtline’s article ‘Tips if you can’t pay your energy bills’.

Benefit overpayments

You may be told by the Department for Work and Pensions (DWP) that you have been overpaid a benefit, such as Income Support, and that they want you to pay this back.

The DWP must tell you if the overpayment can be recovered from you and why. If you do not agree that you owe the money, you can appeal. The law on overpayments is complicated so before deciding whether to appeal, contact your local advice centre or contact us for advice.

The DWP can make deductions from most types of benefits to collect overpayments, except Child Benefit. There are maximum weekly amounts that can be taken. If this will cause you hardship, contact the DWP and ask them to take less. They will probably not accept a proportion of the payment in line with your credit debts.

In some circumstances the DWP will agree to ‘write-off’ the overpayment if your repayments are causing you hardship. Ask your local MP to help.

If you are not on any benefits, you can treat the overpayment in the same way as your other credit debts.

Special rules for Housing Benefit and Council Tax Benefit

If your council says you have been overpaid Housing Benefit or Council Tax Benefit, special rules apply.

Tax Credit overpayments

In some circumstances you may be told that you have been overpaid Child Tax Credit or Working Tax Credit. If you do not agree that you have been overpaid, you may be able to appeal. Contact us for advice.

Overpayments can be recovered in different ways, including deductions from your ongoing claim or even through the same enforcement methods as a tax debt. If paying the tax credits back will cause you hardship, you may be able to reduce the amount at which you pay it back.

You should speak to HM Revenue & Customs and ask for time to pay it back at a rate you can afford. Ask for a copy of their code of practice ‘What happens if we have paid you too much Tax Credit?’ In cases of extreme hardship, they can consider writing off all or part of the debt.

They may agree not to recover the overpayment if it is caused by a mistake by them and you have followed the rules for reporting any mistakes you spot and changes in your circumstances.

Contact us for advice if you are in this situation.

Hire purchase or conditional sale

You can buy goods on all sorts of different credit agreements. With most credit you own the goods straight away and only owe the money to the creditor.

The creditor cannot ask you to return goods you bought with most types of credit. With hire-purchase or conditional-sale agreements, you do not own the goods until you have paid the last instalment. The most common type of goods on hire-purchase agreements are cars.

What kind of agreement do you have?

If you have a hire-purchase or conditional-sale type of credit agreement, it should state this clearly. This information only covers hire-purchase or conditional-sale agreements which come under the Consumer Credit Act. If you are not sure what type of agreement you have, check your agreement or contact us for advice.

Can my lender take back the goods?

If you fall behind with your payments, the lender may be able to ask for the goods to be returned and then sell them to reduce the debt.

You cannot sell the goods yourself without the lender’s permission. If you have paid more than a third off the total amount owing, the goods become ‘protected goods’. This means that the creditor must apply to the county court to ask for the goods back. They cannot just come round and remove them.

Even if you have not paid more than a third of the total amount payable under the agreement, the creditor will need an order from the court or your consent to remove the goods if they are on ‘any premises’. This means that goods inside your home are protected and in the case of cars, as long as they are parked in your garage or on your driveway, they should also be protected.

If your car is parked on the road and you have not paid a third of the total amount owing, there is at risk of it being ‘snatched back’. The legal position about what happens to cars parked in car parks is not clear.

New rules about information from your lender

From October 2008, your lender has to send you statements each year about your agreement. They also have to send you arrears notices if you miss two payments, along with an ‘information sheet’ telling you where to go for help.

If your lender does not follow these rules, they may not be able to take further action against you or add interest and charges until they do so.

If you have received an arrears notice or default notice from your lender, you can apply to the court for a ‘time order’ under the Consumer Credit Act. If this is granted, you may be able to keep your goods, and make smaller reduced payments to your lender.

If your lender takes you to court, you may not have to return the goods, as long as you agree to make the payments that the court orders. This could be: your normal payments plus something towards the arrears; or in certain circumstances, an amount which is less than the normal payments on the agreement.

You will need to show that this is all you can afford to pay and explain why it is important that you keep the goods (for example, you need the car for work).

To make an offer, you should fill in the reply form to the county court claim and go to the court hearing.

Remember

If it is important to you to keep the goods, you may want to include the payments in your ‘outgoings’ section of your personal budget and treat this as a priority and not a credit debt. If you do this, be prepared to explain to creditors why you need the goods (for example, you need the car for work or you live in a rural area with very limited transport).

Returning the goods voluntarily

You may be able to return the goods by writing to your lender to end your agreement. This is only possible if your lender has not already ended your agreement. You will owe up to half the agreement, any arrears and reasonable charges if the goods are damaged.

If you have already paid half of the contractual payments, you will not usually be asked to pay anything more. Once you have returned the goods, you can treat any debt you still owe as a ‘credit debt’.

Council Tax

Because of the council’s powers to make you pay Council Tax, you must treat it as a priority debt. If you can’t pay the full amount:

  • check if you can claim Council Tax Benefit;
  • check the bill has been worked out correctly; 
  • contact your council and make an arrangement to pay;
  • pay what you can afford.

See National Debtline’s article ‘Tips if you’re struggling with Council Tax’.

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