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Debt Advice - UK Personal Finance Guide

Have you ever wondered what the rules are for people in debt? It is not uncommon that at some point in their lives, people fall into debt. This can happen for a variety of reasons including illness, a change in employment or indeed a loss of employment. Being in debt can make people very anxious about how they are to improve their situation. However many do not understand what the rules in this area are.

In this guide we set out the detail of what happens when you are in debt, and the different options available to try and discharge your financial obligations to others.




What should I think about if I fall into debt?

It is an unfortunate fact that at some point in our lives, we will all at some point be in debt to another party. In most cases debt tends to be a familiar topic when dealing with banks or credit card companies. However it can often come up in dealings with landlords, if you are behind in paying your rent. The important point to keep in mind, should you find yourself in debt, is to engage with the people/ organisations to you owe money to (their title will be your 'creditors').

The first thing that you should do if you find yourself in debt is to try and organise (i) what you owe and (ii) to whom you owe it to. In terms of organising what you owe, you should try and classify your debts as falling into one of two categories:

1. Urgent debts

It would not be correct to say that satisfying one kind of debt over another is more important – all debt is important and should be repaid at the earliest opportunities. However urgent debts, sometimes known as 'priority debts' are those debts that have particularly severe consequences if not repaid. They include:

  1. Failure to make your mortgage repayments or rent payments on time. This is sometimes described as being in 'arrears'. If these debts are not discharged then you may well lose your home as a result.
  2. Forgetting to pay your utility bills e.g. electricity and/ or gas. If your provider is not paid the sums that they are due, they may well stop providing you with these resources.
  3. Missing payments of council tax. It may not happen in the first instance, but a failure to pay council tax following multiple demands by the local authority may result in court action being taken against you. This could also result in your being imprisoned in certain circumstances.
  4. Outstanding fines issued by the courts. Your inability to pay these debts may result in your property being confiscated to satisfy the fine, or you could be sent to prison if you do not have any property with which to pay the fine.
  5. Payments to your former spouse or to your children in respect of maintenance. A failure to make these payments can also attract the attention of the courts, and a period of imprisonment in instances where there is a prolonged period of non-payment.
  6. Unexplained missing payments of income tax or VAT. The tax rules in the UK are very strict and a failure to pay the relevant level of tax can result in your being sent to prison.
  7. A failure to pay for a TV licence. It is a criminal offence to use a TV if you do not have a licence for it, which can result in a substantial fine being issued against you.

Urgent debts are deemed as such because a failure to pay them is, in most cases, contrary to law or at least in violation of a contract that you have with a service provider e.g. a bank.

2. Less-urgent debts

This category of debt, otherwise known as 'non-priority debts', does not carry the same consequences for failing to make payment as priority debts. However, a failure to pay them can still result in your being presented with a significant penalty. Non-priority debts include:

  1. A failure to bring authorities' attention your being overpaid any benefits that you are otherwise entitled to;
  2. Unaddressed demands for payment on credit card bills and bank overdrafts;
  3. Charges for use of water and sewage systems that your provider issues to you;
  4. Unsettled student debt;
  5. Money that you have been loaned by family or friends; and
  6. Parking fines.

The point to note about less-urgent debts is that in most cases, a failure to make payment is unlikely to result in your being sent to prison. However non-payment will in almost all cases result in your creditors bringing the matter to the attention of the courts. If a court is not made aware of any extenuating circumstances to explain why you have not made payment on these debts, it could permit your creditors to take further action against you.

What options are there to pay off debt?

The action that you can take in respect of paying off your debts will ultimately depend on the type of debt that you are dealing with. While in all likelihood you would wish to have all of our debt satisfied as soon as possible, you may not have the finances to make this a reality.

In most cases creditors will take a similar approach to debt. If you are already in debt to your creditor, or believe that it is a real likelihood that you will not be able to make payment, in the first instance you should contact them and bring this to their attention.

In your discussion with creditors you should try to come to some kind of arrangement that will allow you to try and repay the debt that you owe. Alternatively if you cannot make repayment as soon as you would like, request some time to allow you to either find the money or, to speak to a professional advisor who will be able to help you.

Your creditors should in most instances behave reasonably with you. There is a voluntary Code of Conduct (available here) for creditors to whom you owe money, which asks that, if you are in severe financial difficulty they approach your situation with tact.

If you will be unable to make full repayment, then ask your creditors whether they will consider a series of smaller, regular payments in order to satisfy the outstanding debt. You must be very clear on whatever you offer to do, and what is ultimately agreed between you both concerning the settlement of your debt to them.

You should also be aware that creditors are not entitled to harass you in an attempt to ensure satisfaction of the debt that you owe. Aggressive practices by lenders to organise payment of debt is a criminal offence, and should be brought to the attention of the authorities.

What can creditors do if I am in debt to them?

The options available to your creditors in securing the money that you owe them will again depend on the nature of the debt in question.

1. How do creditors deal with urgent debt?

Given the consequences that follow from the non-payment of priority creditors, they are obliged to take certain steps when dealing with outstanding debt, before they take any legal action:

  1. Utility providers e.g. gas are required to take into consideration any offers that you have made to make payment of outstanding debt. They must be reasonable in their dealing with you, and cannot completely dismiss genuine attempts made by you to make payment to them.
  2. City councils/ Local authorities do have some discretion in deciding how they will collect outstanding council tax: they can add it to the tax that you will be due to pay in the next year or, add it to the sums that you will be due to pay over the remainder of the current year.
  3. If you owe any child support or maintenance payments but find yourself unable to make payment, you can approach the courts. In doing so, you can ask you're your payment obligations be varied to reflect your circumstances.
  4. The payment of outstanding tax will require some discussion with HM Revenue and Customs (HMRC). If you fall behind on payments you can contact them and ask them to give you some time to work out how you will pay them. This is particularly important if you are self-employed as HMRC are empowered to seize the assets of your business in order to satisfy your outstanding tax liability.

2. How do creditors deal with less-urgent debt?

Most creditors of less-urgent debt will not have the same requirements imposed on them as those dealing with urgent debts. However they should take your case seriously, and be reasonable in considering any proposal that you make to facilitate repayment of debt. You should note however that they are not obliged to accept any offers that you make, if they are not persuaded that you will be able to honour the repayment plan suggested.

3. What is the final option available to creditors?

If your creditors (for either urgent or less-urgent debt) have discharged all of their obligations, in terms of dealing with your attempts to repay debt but are still not convinced, their final option is to approach the courts to force you to make payment. Depending on where you live in the UK, the courts will approach your being in debt in different ways.

In England and Wales a creditor's approaching a court for an order to force you to make payment of debt is called making a claim. You will normally be notified that they are taking court action against you. If you fail to respond to this, or attempt to come to some kind of agreement with your creditor they can ask the court to enter judgement by default, allowing them to take direct action to recover payment from you. If you still refuse to pay after being notified of the court's judgment, your creditor can ask the court to issue an enforcement order. If this is granted, your creditor will be able to instruct bailiffs to take things form your home, take money from your monthly salary and even secure your debt against your home.

In Scotland where a creditor seeks the court's permission to force you to pay debt, it is called diligence. The first thing that a creditor will have to do is prove to the court that you owe them debt: they will seek decree to be made against you. Depending on the type of debt in question, court can then be asked to make a variety of orders:

  • If you owe some level of tax, a court can issue a summary warrant to force you to pay this and, you must pay this within 14 days of receiving it;
  • In respect of debt in general the court can issue an earnings arrestment, meaning that your debt will be deducted from your monthly wage;
  • Your creditors can also ask the court to freeze your bank accounts, by arresting them;
  • In respects of non-mortgage related debt, creditors can also prevent you from selling your home to protect its value for them. This is called inhibition, and can last for up to five years; or
  • A creditor can ask the court's permission to sell off some of your property to realise your outstanding debt. This is called attachment. However this cannot be done by anyone other than a Sheriff Officer, and only applies to non-essential items.

Regardless of the type of court order in question, in Scotland a creditor must issue you with a charge for payment and a debt information and advice package before they make use of the court order.

Key points

  • All debt should be taken seriously: do not ignore your creditors;
  • Creditors are obliged to treat your situation fairly and be reasonable in their dealings with you;
  • Keep records of all conversations and any agreements that you come to with your creditors;
  • Court action tends to be the last resort for creditors in securing outstanding debt, and requires strict criteria to be observed by them

Nothing in this guide is intended to constitute legal advice and you are strongly advised to seek independent legal advice on matters that affect you.

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Last Updated

Tuesday, 12 January 2016


Consumer Rights