Everyone you owe a debt to will want you to pay off their debt first. Whatever your creditors (the one’s you owe the money to) want you to do, and whatever you would like to do, you must prioritise your debts. You must do this for three reasons.

1. To maintain the basics of life: electricity, gas, water, a ‘roof over your head’ etc.

2. To avoid legal action, in particular, criminal legal action: an unpaid TV licence and/or court fine can (and will) lead to imprisonment.

3. To avoid removal of your chattels (removable possessions) by County Court bailiff or High Court sheriff.

Your priority debts are:

Hire Purchase (goods on hire purchase cannot be repossessed without a court order if you have paid over a third of the total amount payable under the HP Agreement. If you have paid at least fifty percent, and there are no arrears (or you pay the arrears) you can hand back the goods without further payment. The goods must be in a ‘reasonable’ condition.

All other debts will have an equal rating. It is not uncommon for debtors (the one who owes the debt) to maintain full payment of a non-preferential debt in an attempt to keep open a line of credit, or pay a threatening creditor ‘or else’. If you do pay a non-preferential creditor in such a way you will not receive the support of your other creditors (which is crucial), and bankruptcy could follow. We will deal with an Income and Expenditure Statement in another article however the following is a brief outline concerning priority debts.

There are two ways to approach the payment of these debts:

First way – be in control, be prepared

In advance, work out how much you will pay to each priority debt (you may have a small amount of money set aside for non-preferential debts). However, this figure should only represent a token gesture. Priority creditors will not agree to any significant amounts being paid to, say, maintain a telephone (unless you need this for an acceptable reason like health), a car on hire purchase (again, unless you have a real need). In fact, a preferential creditor would expect you to sell the car and/or any other substantial property that had equity (equity is money you have left after selling your property and paying off the credit company).

The amount you offer each creditor should reflect an obvious and relevant payment structure i.e. paying £12 per month on your TV licence will not impress the court that you are trying to offer £2 per month. Send each creditor a list of your debts, how much you will pay each of them, and list your income and expenditure. Tell them you need a chance to correct your situation and that you are completely committed to paying your debts. And that you will increase the payment as and when you can (i.e. when you pay off one creditor, you will have the discipline to increase the amount paid to the other creditors: recommended).

Second way – one problem at a time

You need to evaluate which preferential creditor/s pose the most immediate and/or biggest threat to your basic needs and/or liberty. At this stage there is no point in worrying about any other creditor. You must contact that creditor and agree the lowest amount they will let you pay. If you resolve the most serious problem, move on to the next creditor/s and again get the lowest payment arrangement you can get, and so on…

If one particular creditor is being uncooperative, offer what you think is fair, start paying that amount and tell them, that if after arranging payment with the other priority debts you have some money left, you will increase their payment.

Finally, priority creditors are set up to deal with debt problems. Talk to them, most will give you advice, all will give you a first chance. If you make an arrangement: stick to it. Make sure you only commit yourself to what you can afford. There is little point in calling a creditor and telling them you cannot make this month’s payment: you may not get a second chance

What Action to Take With a Threatening or Harassing Creditor

The Consumer Credit Licensing Bureau (a government department with teeth) deals with consumer credit licensing matters. All company’s that supply credit to consumers (not companies) must have a licence. The licence is the ‘life blood’ of any lender, retailer etc. The bureau will take effective action against those who do not act within the rules: if they are informed. All moneylenders must have a licence.

If a creditor is threatening you, you can either write to the licence bureau, or in a bodily harm threat, contact the police. If a creditor knocks on your door every week, or telephones you constantly at work, at night, and you ask them not to: they are harassing you. The creditor must take legal action or write off the debt.


Facing up to Debts and Creditors

An alcoholic has to face up to reality, take stock of their situation, and then take one day at a time. Debt problems are very similar. You have to admit (if only to yourself) that you have commitments beyond your control. You have to face up to the reality that they will not go away. You need to take stock of your entire financial position, and finally you have to deal with it: not ‘one day at a time’, but, just deal with it!

The first thing you need to do is to prepare an ‘Income and Expenditure’ form. By working out what you have to spread over your creditors (however thin) you can begin to control your finances and future.

Next you have to write or telephone all of your creditors (letters are preferred, as they are a true account of your negotiations). You need to state your current personal and financial position. It can help to explain why you find yourself in this position if the reason is helpful to your case (telling your creditors that you lost lots of money betting will not endear them to your cause, further, your creditors may decide to take legal action as you are likely to return to gambling at some stage). You need to state what you can pay and when this will happen. You should request a written acceptance of your offer, and that they will stop interest accruing on your debts.

The mood of your letter should be that you had a problem, that you cannot get out of it overnight, and that you need their help and understanding to achieve a satisfactory solution for all. Creditors do not need to accept your proposal. Some may agree to, say, a three or six month arrangement, then review. Others will accept easily, and a small number may refuse (with the latter, you need to plainly express that you offer something for everyone, or nothing for all).

Answer creditors letters promptly; be open and fair; never be bullied or bullish. As a debtor you will get intimidating letters and telephone calls, they will ‘want this now, and ‘that by then’ or ‘we will do that’. Creditors believe that ‘the louder you shout (at debtors), the more you will get paid’ (and it works). By showing your creditors that you are in control of your debts and your future, you will stop them shouting and get them to start listening! Completing an Income and Expenditure Statement

An Income and Expenditure Statement is similar to the form you probably completed to get the very debts we all face today. The purpose of the form is twofold:

a) For you to calculate how much money you need to live on.

b) To indicate how much money you can set aside for your creditors.

The form has four parts:

1. Income

Your total income (including any spouse). The statement can be a joint proposal for a couple.

2. Living Costs

Every expense, but excluding any debts i.e. your weekly rent would go in this part, but not any arrears. A monthly hire purchase payment is not a living expense; the whole balance is a debt.


3. Priority Debts

See ‘Priority Debts’ article.


4. Non-priority Debts

Every other debt not included in part 3 is a non-priority debt (whatever the creditor may tell you).

Some guides to completing the statement are:

Use monthly or weekly figures throughout the statement. Do not mix the two.


Housekeeping:

A couple £70 per week, single person £40, each child £25.

Quarterly Bills:

Add together your last 4 bills (being, one year) then divide by 52 if you are using weekly figures, or divide by 12 if you are using monthly figures.


Clothing:

A contentious figure of £5 per week is the maximum amount your creditors are likely to agree to (your creditors expect you to ‘pull in the purse strings’).


Telephone:

Having a telephone for a reason other than health or work will not please some of your creditors (unless they use the telephone to contact you at 9 p.m.). You must keep this figure low and relevant to your current position.

Finally, do not underestimate your living costs or loose sight of this opportunity. Having to immediately reduce the amount of money paid to your creditors will not leave you any room for manoeuvre at a later date, and may well lead to some creditors taking legal action. The first few months of any arrangement are crucial in determining your creditors support: you have been warned!