Understanding different debts

Different creditors have different ways of getting their money back. It's vital to understand which debts are the most important, and what the consequences of non-payment could be.

All debts can be classed as either priority or non-priority.

Priority debts

Priority debts include:

Mortgage Rent
Secured loans Utilities (gas, water & electricity)
Child maintenance Magistrates' Court fines
County Court Judgments (CCJs) Tax
Council tax VAT
National Insurance Telephone
TV licence Insurance policies
Hire Purchase (like cars and washing-machines)
Working Tax Credit / Child Tax Credit / Benefit overpayments

These are the debts with the most serious consequences for non-payment. If you don't pay them, you could (if the worst comes to the worst):

  • have your gas or electricity supply cut off
  • have your possessions taken away by bailiffs
  • lose your home / be evicted
  • be imprisoned.

However, you would be warned ahead of time if a creditor was seriously thinking about any of these options. As long as you respond to any correspondence and talk to your creditors, you should be given the opportunity to take action and potentially avoid such drastic consequences.

If you think you might need professional advice, it's better to do this sooner rather than later.

Non-Priority debts

Non-priority debts include

Credit cards & store cards
Overdrafts Credit agreements/Unsecured loans
Conditional sales agreements Hire Purchase (non-essential goods)

The term 'non-priority' doesn't mean these debts are unimportant, or that you're not legally obliged to pay them.

However, the consequences of not paying non-priority creditors are less serious. They can't, for example, repossess your home or send the bailiffs round without court permission. If they feel it's necessary, they may seek the court's help to recover what you owe them. This will affect your credit rating.

As long as you act in good time, you should be given the opportunity to avoid any such consequences. Stay in touch with your creditors - and if you want to know more about your rights, obligations and options, you'll find further useful information in this debt help guide.

Note: if you're having difficulty making your repayments, you should figure out how you'll pay your priority debts before you make any definite agreements with your non-priority creditors.

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