Types of Debt
Quick Guide to Priority Debts
|Priority Debt||Possible Result|
|Rent arrears||Loss of your home|
|Mortgage/Secured loan arrears||Loss of your home|
|Council tax arrears||Bailiffs/imprisonment|
|Electric / Gas arrears||Electricity or gas cut off|
|Income Tax Arrears||Bailiffs/imprisonment|
|Hire Purchase arrears||Repossession of HP goods|
1. If you owe rent
Contact your landlord immediately to make an arrangement to pay whatever you can. Usually they will expect you to pay your normal rent each week/month and make some payment (even if it is only a small amount) towards your arrears. You will need to be able to keep up with these payments over the long term, so don’t promise to pay more than you can realistically afford or you will only make the problem worse. If the landlord refuses to accept what you have offered, pay it anyway. If the dispute progresses to the state where you end up in court, it will help your case if you can show you have made the effort to pay. (Read more)
If you are struggling to afford rent you may be able to get the amount you have to pay reduced by claiming Housing Benefit. See our Welfare Benefits section for more information on whether you may be eligible and how to claim.
If your arrears have been caused by a problem with Housing Benefit not being paid, you will need to contact your local council to find out what has happened. Tameside Council’s
Housing Benefit department can be found at Housing Benefit Office, Council Offices, Wellington Road, Ashton-Under-Lyne, OL6 6DL or on 0161 342 3708
. You should also get in touch with your landlord to let them know what’s going on and tell them that you are dealing with the problem.
If your landlord wants you out of the property, they must go to court. If they harass you, or try to get you to leave without a court order, they are breaking the law. Get advice immediately. For more advice and information about your rights, you can look at http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/DebtsAndArrears/DG_10019426
There are several stages to the legal procedure if your landlord does take you to court:
- Notice – The landlord will send you a legal document called a Notice to Quit or a Notice Seeking Possession.
- Summons – The court will send you a County Court Possession Claim Form. This tells you the legal reasons why the landlord says you have to leave. It also tells you the date and time when the case will be dealt with in court. You will need to reply to this so get advice.
- The Court Hearing – The court hearing takes place in public before a County Court Judge, and you must make sure you attend. If you don’t go then you’ll have no chance to put forward your side of the story and the judge may be more likely to side with your landlord.
The procedure is quite formal, and you may be nervous about going along, but many people find the court isn’t as intimidating as they imagined it would be. It should help you feel more confident if you are thoroughly prepared beforehand and have brought some notes with you of what you want to say. You’ll have to make sure you’ve any paperwork with you that you need with you as well. This page from DirectGov has more ideas of what you can do to prepare yourself ahead of your court date.
You might want to consider seeking advice or seeing if you are entitled to free legal aid
. (Look at our Legal Advice section or go to http://www.communitylegaladvice.org.uk/en/directory/directorysearch.jsp
for more advice about community legal aid.) You may feel you will have a better chance of getting your side of the story across if someone speaks for you who understands the procedure.
If your landlord is a housing association
it is likely they will have a representative at court who you can talk to before the hearing. You may be able to reach an agreement with them before the case is heard. Private landlords
may speak on their own behalf, or they may have a solicitor to represent them.
After hearing the case, the judge will come to a decision. If the case is just about arrears, the most likely outcome is that the judge will make a Suspended Possession Order
. This means that the court orders you to regularly pay the rent plus an amount off the arrears
. If you pay this you cannot be evicted.
The judge may decide that you will lose your home. In this situation the judge makes an Order for Outright Possession
which means that at the end of a set period (usually 28 days) you must leave your home.
If no decision can be made, the judge will adjourn the case to be heard another day.
You can only be evicted in two situations:
- The judge has made an Order for Outright Possession.
- The judge has made a Suspended Possession Order and you have not kept up with the payments.
If this happens, you will get a letter from officials called County Court bailiffs
. The letter is a Warrant of Possession
. It gives the date and time when the bailiffs will come to evict you. Nobody can force you to leave the property before then.
It is best if you have left and removed your belongings before the bailiffs arrive. If you have not left when they come, the bailiffs have the right to break in and force you to leave. However, they will not take your belongings out of the house. You will need to ask permission from the landlord to go back into the house and get your things back.
This process can be stopped at any stage by making an agreement with your landlord, and sometimes going back to court.
2. If you owe mortgage payments (This applies to first mortgages, second mortgages and secured loans)
Your first mortgage is the one you took out when you bought your home. A second mortgage, secured loan or a second charge is a separate loan which is secured on your home.
You should have been informed when you took out the loan whether it was secured or unsecured. Check all of your loan agreements to see if they are secured on your home. If they are secured loans this means that the lender can ask the court to repossess your home if you don’t keep up repayments. They will then sell your home to pay off the debt you owe them. This means you must treat secured loans as priority debts. (Read more)
Contact your lender as soon as you think you may have a difficulty making payments. The more you show you are willing to co-operate and come to an agreement, the more likely the lender is to consider your case, and if you have to go to court then any attempts you have made to communicate with your lender will also work in your favour. Remember it is never too early or too late to come to an arrangement.
You will usually have to pay the amount you should pay each month plus some extra each month to clear the arrears
, or the amount you owe. The lenders will often ask for the arrears to be cleared over 12 to 24 months. However they can also agree for you to pay over a longer period if they agree it is necessary, so if you are unable to clear the arrears as quickly as your lender is asking you to, make sure you contact them and explain why you can’t e.g. illness, separation, loss of job, etc.
If your home is worth far more than the amount outstanding on your mortgage
, tell the lender. The more your home is worth, the less risk your lenders are taking in giving you more time to clear your arrears by instalments
Occasionally your lender may agree to you:
- Paying interest only for a short time – This will reduce the amount you need to pay each month, because you will only be paying off the interest on the amount you have borrowed, rather than making a payment towards the loan itself. However, this will result in you having to make payments for longer, and the total amount you will have to pay will be increased as you will be paying more interest for longer.
- Adding the arrears to your total mortgage debt – This will reduce the pressure on you to make the payments in the short term but will increase the overall amount you owe. This means you will be paying off the loan for longer and it will cost you more overall as you will be paying more interest for longer.
- Increasing the mortgage term – This means that you will spread your mortgage payments over a longer period of time by making smaller payments each month. This can relieve the pressure over the short term, but again you will be making payments for longer and will end up paying more overall due to the extra interest.
Companies offering secured loans
or second mortgages
are generally less tolerant of arrears because they have fewer rights than your main lender to any money if your home is repossessed
. They may apply a lot of pressure to get you to pay, and sometimes go to court very quickly after you miss a payment. This can make reaching an agreement difficult. Try offering an extra amount on top of the monthly payment to clear the arrears in 12 to 24 months. If you can’t manage this get some advice. See our Who can Help?
or Useful Organisations
pages for details of agencies that may be able to assist you.
You may be able to apply to the County Court
to get your normal monthly payment reduced. This is called a Time Order
. If you think this would help get some advice.
Start paying what you can reasonably afford to pay, which should be your monthly payment plus something off the arrears. This will help your case if it goes to court. Remember you do have rights if you are taken to court. See our Legal Advice
page for more information.
3. If you owe council tax
If you do not pay your council tax, court action may be taken against you which could lead to:
- Money being taken from your wages or Income Support or income-based Jobseeker’s Allowance or Pension Credit
- Your goods being taken away by bailiffs to be sold
- As a last resort, you can even be sent to prison.
Each April you will get a new council tax bill that you can pay in ten monthly instalments
. If you want to pay your bill weekly or fortnightly ring the Council Tax section and they should be able to arrange this for you. The number you will need depends on where you live:
- Ashton or Mossley – 0161 342 2015
- Denton or Dukinfield – 0161 342 2099
- Audenshaw, Hyde or Longdendale – 0161 342 2065
- Droylsden or Stalybridge – 0161 342 2080
If you cannot afford to make payments on your council tax, contact the council and make them an offer for whatever you have worked out you can afford based on your budget
. They will usually want you to pay off your council tax arrears
before you get the next bill. If you cannot afford this, tell them. Start paying the amount you have offered immediately.
You may also be entitled to a reduction on the amount you have to pay for your council tax:
- Council Tax Benefit – People on a low income in certain circumstances may be entitled to help with paying their council tax.
- Second Adult Rebate – If you have a non-dependent person, such as a grown up child or other relative living with you, you will receive less housing benefit as this person will be expected to make a contribution towards the rent. However if this person is on a low income you may be able to claim Second Adult Rebate, which will reduce the amount they are expected to contribute.
- Single Person Discount – You can claim this discount on your council tax if you are the only adult eligible to pay council tax who is living in the home.
- Council Tax discounts – People in certain circumstances (for instance if you are a carer, student, youth trainee or severely mentally disabled) may be entitled to a discount on their council tax. Check if you qualify.
- Council Tax reduction for disabled people – If you or someone you live with is disabled, and needs a bigger home with extra space because of your disability, you may be entitled to a reduction in your council tax.
If you do not pay your council tax, the council will go through three steps to try and get the money you owe from you:
- Firstly, the council will get a Liability Order from the Magistrates Court. Unless you make an arrangement and keep to it, they can:
- Take money directly from your wages or Income Support, income-based Jobseekers Allowance or Pension Credit
- Send a bailiff to your home. Even at this stage, it is possible to make an arrangement to pay. If you do not make an arrangement, the bailiff will take away your possessions and sell them at auction to pay your debt. It’s important to remember that you do not have to let a Council Tax bailiff into your home. See our section on Bailiffs for more advice.
- If you own your own property or have other valuable assets the council may be able to make you bankrupt. For more information on bankruptcy see our What Are My Options? page.
- If the Council can’t get any money using the powers above or if you have not made an arrangement to pay what you owe, they can ask the Magistrates Court to consider whether you should be sent to prison.
- If the court is considering sending you to prison, you will be sent a legal document called a Summons. This will give you the legal details of the case, and tell you the date and time when the case will be heard.
You must go to court. Take your budget sheet with you and explain your problems. The Magistrates will usually give you time to pay. If you aren’t able to pay, you can ask them to write off or cancel your arrears. You can only be sent to prison if the court believes you could afford to pay but are refusing to do so.
If you agree to pay your council tax arrears over a longer period, you must make every effort to stick to the arrangement you have made. If you are unable to afford the payment amount set, go back to the Magistrates’ Court and ask for the payments to be reduced. Do not just stop paying, as the Magistrates’ Court will then issue another warrant for your arrest.
4. If you owe gas or electricity payments
Your gas and electricity may be cut off if you don’t pay your bill within about five weeks of getting it. This only applies if you owe money to your current supplier; your supply cannot be cut off for money you owe from a previous debt. It’s also important to remember you can only be cut off for actual gas or electricity bills. You cannot be cut off because you owe a company for goods you have bought on credit. (Read more)
As with any creditor, the sooner you get in touch with your gas or electric company about your arrears the better. Pay as much of the bill as you can and talk to the company about how you can pay off the rest using your budget sheet
and by making an offer using the money you have available for creditors
. The company must accept what you can realistically afford to pay, even if this means it will take you years to pay off what you owe. Show them your budget sheet so they can see how you have worked out the amount you can afford to pay them.
They should offer you:
- A weekly, fortnightly or monthly budget scheme that will include enough to pay for your current usage and an amount off your arrears.
- A pre-payment meter. Provided it is safe to install a meter, they must offer you one rather than cut you off. They must set the meter to collect your arrears at a rate you can afford. If they won’t agree to the arrears being repaid at the rate you can afford, ask to speak to a manager.
- Deductions from your benefit covering current usage plus an amount off your arrears paid direct to your supplier.
If you need more advice or help with your utility bills, see our Utility Bills and Affordable Warmth page.
5. If you owe child maintenance payments
Since April 1993 the Child Support Agency has taken over the responsibility for calculating and collecting child maintenance from the courts.
Arrears of child maintenance are a priority debt as the Child Support Agency has the power to:
For more information about child maintenance, see http://www.csa.gov.uk/
- Deduct payments directly from your wages or benefits,
- Get a court order allowing the bailiffs to remove and sell your goods,
- If all else fails, imprison you. You should try to make an agreement to pay what you can afford. Use your budget sheet to make an offer out of your money for creditors.
6. If you owe money on hire purchase agreements
Remember hire purchase is different to normal buying on credit, although it is a form of credit. Most goods bought on credit are not bought on hire purchase (HP). You have only bought something on hire purchase if you have a Hire Purchase Agreement or a Conditional Sale Agreement. If you have one of these agreements, the company owns the goods until you have made the final payment. These agreements are mostly used for cars or other expensive items such as TVs or laptops. Make sure you check what sort of agreement you have. If you are not sure, ask the creditor or get some advice. (Read more)
With all other forms of credit, you own the goods straight away and the creditor
has no right to take the goods back if you owe them money. The money you owe is simply a credit debt
and is not classed as a priority debt
. However, if you have paid less than a third of a Hire Purchase Agreement, the company has the right to get the goods back. They do not need to go to court. If you have paid more than a third, the company may still be able to take the goods back from you, but they will need to go to court first. If you have paid a half or more of a Hire Purchase Agreement you can surrender the goods and will be liable for no further payments unless there are arrears which you must pay.
For more information on hire purchase agreements, see our Buying on Credit