What is a priority debt?
The consequences of non-payment of priority debts
A priority debt is one where the creditor's ultimate sanction may result in a person losing her/his:-
- liberty; or
- home; or
- essential supplies, for example, gas or electricity; or
- in some circumstances, essential goods.
Table of priority debts
This table lists the priority debts and the ultimate sanction which may be applied to them:-
| Type of debt | Ultimate sanction |
| Mortgage\secured loan arrears | Repossession followed by eviction |
| Rent arrears | Repossession followed by eviction |
| Council tax in England, Wales and Scotland | Imprisonment in England and Wales |
| Gas/electricity arrears (current suppliers) | Disconnection |
| Maintenance arrears, child support arrears, contribution order arrears in England and Wales (for children in care) enforced through the magistrates' court or sheriff court | Imprisonment |
| Income tax arrears when enforced through the magistrates' court in England and Wales, sheriff court in Scotland | Imprisonment |
| VAT arrears | Imprisonment (only for evading payment) |
| National insurance contribution arrears | Fine - followed by imprisonment if unpaid |
| Telephone/mobile phone /telecom packages arrears (essential services) | Disconnection |
| Hire purchase/conditional sale (essential goods) | Repossession of essential goods |
| Fines arrears / default | Imprisonment |
What is a non-priority debt
The consequences of non-payment of non-priority debts
The sanctions open to creditors for non-payment of non-priority debts are generally less serious for a person than the sanctions for non-payment of priority debts. For example, in the case of non-priority debts, the creditor can sue for money or repossess a non-essential item.
If the creditor has already obtained a court judgment which the debtor has failed to meet, the creditor may be able to take enforcement action or make the debtor bankrupt, which could have more serious consequences. For example, if the debtor is a home owner, she/he may risk losing her/his home.
Each debt should be checked to see what action the creditor has taken. In exceptional circumstances, a debtor may need to give a debt a higher priority than usual, for example, where the creditor has begun bankruptcy action, or sequestration action in Scotland, and she/he risks losing her/his home as a result.
Table of non-priority debts
This table lists the ultimate sanction open to creditors if non-priority debts are not paid:-
| Type of debt | Ultimate sanction |
Consumer credit debts and unsecured personal debts including:-
|
Court action for debts |
| Benefit overpayments | Deduction at source if client still in receipt of benefit |
| Tax credit overpayments | Deduction from ongoing entitlement if one still in receipt of tax credits. Court action for debt if not |
| Hire purchase/conditional sale (non-essential goods) | Repossession of goods |
| Parking penalties - civil enforcement | Bailiffs may seize vehicle |
| Water rates arrears in England and Wales | Court action for debts |
How to prioritise debts
Priority debts should be dealt with before offers of repayment are calculated for non-priority debts, to avoid further action being taken by the creditor. This means contacting priority creditors individually and making whatever repayment arrangements are both acceptable to the creditors and realistic for the debtor, out of the debtor's available income. Priority creditors should be asked to suspend any action while the repayment agreement is in place.
All non-priority debts should be treated equitably. This means that, if the client has any money available, it should be distributed to non-priority creditors on a pro rata basis in proportion to the size of each debt.
However, you need to look at all debts individually because, in some circumstances, one non-priority debt may need to be given more importance than others. For example, in England and Wales, a debtor may need to maintain the payment terms of a court judgment on a personal loan or credit card if the home is at risk because of a charging order.