What Are Priority & Non-Priority Debts?

Some debts are called priority debts because the consequences of not paying are serious. Priority debts should be dealt with before your non-priority debts.

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PayPlan can help you!

We could offer you a solution that will reduce your monthly payments with the potential of freezing interest and charges, and even writing off some of the debt.

The options PayPlan can offer

The options PayPlan can offer vary depending on your situation, and there is no obligation to progress if you do not wish. We will simply talk through the different solutions to help you decide what is best for you. For more information on the solutions we offer/advise on, please see: DMP IVA Self-employed IVA DRO and Bankruptcy.

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What is an IVA?

An Individual Voluntary Arrangement (IVA) is an agreement with the people you owe money to. You make affordable payments over a period of time (usually 5-6 years) and at the end, your remaining debts are written off.

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What is a Debt Management Plan?

A debt management plan (DMP) allows you to pay back your creditors each month at an amount you can afford. The DMP lasts until you have repaid your debts in full or your circumstances improve.

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What is a Self-employed IVA?

A self-employed Individual Voluntary Arrangement (IVA) is an agreement to pay back what you owe whilst still running your business. You make affordable payments over a period of time (usually 5-6 years) and at the end, your remaining debts are written off.

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What is a Debt Relief Order?

A debt relief order is a solution available if you are not able to afford any payments to people you owe to. It freezes debts for a year at which time they are written off if your circumstances have not improved.

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What is Bankruptcy?

Bankruptcy is a type of insolvency that involves applying to the court in order to clear your debts. There is an upfront fee and you may be required to make payments from your earnings into the bankruptcy for up to 3 years.

Priority debts include:

• mortgage repayments and loans secured on your home
• rent
• gas and electricity debts
• council tax
• certain payments ordered by the courts
• Hire Purchase payments if the HP is for a vehicle or goods that are essential
• Child support or maintenance
• TV licence

There are consequences if you don’t pay a priority debt. For example you could:

• lose your home through mortgage or rent arrears
• have your gas or electricity supply cut off, or have to accept an expensive pre-payment meter instead
• lose belongings on hire purchase such as a car, furniture or other goods

What are non-priority debts?

Non-priority debts are still important and will need paying but the consequences are less severe than priority debts.

Non-priority debts include:

• credit card debts
• hire purchase agreements (HP) for items that are non-essential
• unsecured bank loans (loans that are not secured against your property)
• water bills
• loans from friends and family
• payday loans
• catalogue debts

It is important to note that continued failure to make payments can lead to your creditors taking legal action. Missing payments will also have a negative effect on your credit rating and ability to get credit.

What you should do?

Work out your budget to check how much you have left each month after all your household bills have been paid. You can then use any surplus to clear priority arrears as quickly as possible. You can discuss your circumstances with your creditors and offer reduced payments to non-priority debts – this will help free up as much surplus as possible for the priority arrears.

Don’t ignore letters or phone calls from your priority creditors.

Get in touch with them as soon as possible and explain to them why you are in arrears with your payments.

It’s best to contact priority creditors by phone if you can to sort things out more quickly. Make a note of all telephone calls and meetings, including the name of the person you spoke to and what you agreed. If you phone, you should follow up the call with a letter, confirming what you said on the phone. Keep copies of any letters you write to them. If you don’t think you are talking to the correct person ask who is in charge of your account.

When you contact your creditors, explain why you’re in debt. If you can’t make an offer of repayment straight away, ask for more time, for example 14 or 28 days, while you get advice and work out your budget.

It’s important to try to pay at least the regular instalment in the meantime. If you can’t do this, pay as much as you can afford and get help as soon as possible.

We can help you talk to your creditors and advise you on alternative options if you would prefer.

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