What is a priority debt?

Priority debts need to be dealt with first because there can be serious consequences if you do not e.g. losing your home. They include:

  • Rent and mortgage arrears
  • Council tax arrears
  • Electricity, gas, water bills
  • Court fines
  • Income tax
  • VAT
  • TV licence.
How can I manage my budget?
  • Draw up a budget sheet that lists all the money coming in and all the money you have to pay out
  • Review the budget sheet on a regular basis
  • Shop around for cheapest gas, electricity, phone, insurance deals. Online comparison websites can be useful here.
  • Check benefit entitlement to maximise your income
  • Avoid credit and loans where possible. Check the terms, including the interest rates, if you are considering borrowing money or using a form of credit
  • Try to save a regular amount to cover emergencies
  • Do not ignore debts – advice is available online and through specialist debt advice organisations.
Can I deal with my debts myself?

You can negotiate with your creditors (people you owe money to) yourself.

You can work out a budget sheet and then work out a pro-rata amount to pay your creditors each month. You need to pay the priority debts first and then use any remaining available income for your non-priority debts. You can follow the procedures by using the step by step guides available on www.adviceguide.org.uk

What is a Debt Management Plan (DMP)?

This is an affordable repayment plan set up and managed by a Debt Management Company. They help you work out what amount you can afford, you pay this to the company and they distribute it to your creditors.

  •  You need to answer yes to the following questions:
  • Are the debts unsecured?
  • Owe more than £5,000 to 2 or more separate creditors?
  • Have £100 or more available income each month?

The disadvantages of a DMP can be that the Debt Management Company will charge you a fee to administer the plan, generally 15% each month plus administration charges to set up the plan could take up the whole of the first monthly payment. Other disadvantages are that creditors may not freeze the interest so your debt increases and that it generally takes longer to clear the debts due to the fees.

What is a Debt Relief Order(DRO)?

An order granted by the Insolvency Service. The criteria are as follows:

  • Qualifying debts of £15,000 or less
  • Assets of less than £300
  • Available income for creditors of £50 per month or less
  • On a low income.
What is an Individual Voluntary Arrangement (IVA)?

A legally binding agreement in the County Court to pay an agreed amount towards your debts over a shorter period of time (60 months). The criteria include:

  • Debts of at least £15,000 to 3 or more separate creditors.

If you do not keep to an IVA, your creditors can make you bankrupt.

What is bankruptcy?

This is a way of dealing with debts that you cannot afford to pay. Once declared bankrupt, assets could be used to pay off some or all of the debt. After a period of time (usually 1 year), any outstanding debts are written off. However, the effects of bankruptcy are severe so get specialist advice.

How does debt affects your credit record?

Information is collected and stored by credit reference agencies and then passed onto lenders, banks, stores when you make an application for credit. Arrangements you make with creditors will show on these records. Your ability to obtain credit may be adversely affected.

Bailiffs are contacting me about a magistrates court fine. What can I do?

There is an advice tool on Community Legal Services website for advice on this: www.insolvencyhelpline.co.uk

How can I make or defend a money claim in the county court?

You can do this online at: www.moneyclaim.gov.uk

Where can I go for advice on a business debt problem?

Small businesses can obtain debt advice from www.bdl.org.uk