Debt - The Consequences of Non-Payment

Owing money does not have to be bad. Most people borrow money to help make ends meet or to make a large purchase.

Repaying credit agreements on time can improve your credit rating. However, debt can become a problem if you cannot afford to pay what you owe or doing so causes severe financial hardship.

Always check whether Payment Protection Insurance (PPI) is included in the credit agreement. If yes, your client should CLAIM this and then the policy should meet the debt payments.

One of the first tasks for a money adviser is to establish which debts have the most serious consequences legally for non payment– these are called priority debts. Debts with less serious consequences fall into the non priority category.

See Appendix C for a one page breakdown of priority and non priority debt.

Priority Debts Definition

A debt is a Priority Debt where the creditor’s sanctions could cause the loss of four key protections:

the clients liberty
the clients home
the clients essential services such as fuel supply
the clients essential goods

The essential goods category may vary from person to person. For example, a mobile phone could be considered a priority if an individual had no other form of telephone contact and had health difficulties. However, if there was also a landline and no health difficulties then this could be treated as a non priority debt. It depends on the circumstances of the client.

Emergencies

If enforcement action is imminent or a client is about to lose their home, refer your client for debt advice immediately. More information and advice about dealing with urgent debts can be found on the Citizens Advice Bureau website.

Non Priority Debts

Non Priority creditors have no special powers or sanctions that can directly lead to imprisonment, eviction, repossession or disconnection. To recover their debts from defaulting customers, the ultimate action for non priority creditors is to use the county court claim process. They may use debt collection agents to try and collect debts, which includes letters, solicitors letters, home visits and telephone calls. They may charge additional interest and charges once an account is in arrears.

If a creditor decides to take county court action against a client, they will issue a claim against the client in a County Court. This will result in a County Court Judgment (CCJ).

County Court - Replying to a Claim Form

Debt and Money Factsheets

If the creditor has already obtained a court judgment which is defaulted, the creditor may be able to take enforcement action or make the debtor bankrupt, which could have more serious consequences. For example, if the client is a home owner, s/he may risk losing her/his home. Enforcement action includes:

Charging Order – Securing the debt on the owned home
Attachment of Earnings Order – taking money directly from wages to repay the debt
Third Party Debt Order – Freezing an account in credit or any other capital or asset
Warrant of Control (warrant of execution before 6th April 2014) – an order giving bailiffs the power to attend the property and remove goods. Please note that bailiff law changed from 6th April 2014
Order to Obtain Information – the creditor can ask the client to attend court to give information on their means, essentially for the creditor to work out how the debt can be repaid the quickest. Failure to provide this information and/or attend any hearing can result in prison
Bankruptcy Proceedings - If more than £750 is owed, the creditor could take bankruptcy proceedings against the person that owes the money by issuing a statutory demand.

If a claim has been issued or your client requires advice about any stage of enforcement, your client should be referred for debt advice.

For further information about identifying whether a debt is a priority or a non priority debt please visit the Advice Guide wesbite and National Debtline website.