Priority Debts
A priority debt as one for which there are more serious or immediate consequences for the non-payment of compared to certain unsecured debts.
Priority debts are those you should be paying ahead of debts from unsecured borrowing.
Note: if you have several debts you can’t afford, don’t pay first the creditor who shouts loudest first. Unsecured creditors have fewer powers to enforce payment, so tend to be more aggressive in trying to get payment. Do not pay any of these debts before paying for your priority debts and commitments.
Typical priority debts are:
Mortgage and Secured Loans
Failure to make payment to a secured loan or mortgage could lead to your lender repossessing your home. If you are a homeowner, this is one payment you do not want to miss. If you are struggling with payments, speak to your lender. If it is a short term issue, for example between jobs or sickness or Covid-19 related, then a payment holiday may be possible.
For more information see Secured Loan Debt
County Court Judgments
A CCJ can be included as a creditor in an IVA. Insolvency law states that when someone applies for an IVA, all their unsecured creditors must be treated equally, with no advantage being afforded to one over another. This is even the case when a CCJ is awarded.
An exception is when bailiff have already entered your home, and you have signed a walking possession agreement.
For more information see Bailiffs – What Are My Rights?
Council Tax
Council Tax arrears are a priority debt as the council can send bailiffs to your home or take payment directly from your wages/benefits. In extreme cases, they can apply for committal to prison. Council tax is an essential expenditure.
While arrears can be included in an IVA, this is only when you are the only person in your household who pays council tax. Other names appearing on the bill remain liable for the entire bill or any arrears.
For more information see Council Tax Debt – Could I Write Some Off?
Gas or Electricity Arrears
A supplier is not going cut off your supply if you fail to pay these bills. You will be eventually fitted with a pre-payment meter, but this excludes you from the cheapest tariffs.
If you have arrears; try to arrange with the supplier to repay them in instalments. Otherwise, you may find yourself issued with a CCJ (county court judgment) with a repayment schedule determined for you. This will harm your credit rating.
For more information see Gas & Electricity Bills Debt Help
Water Arrears
Water arrears from a previous address and your current address can both be included in an IVA as a creditor. This differs from other utilities as you can not change water supplier.
For more information see Water Arrears Debt – Can I Be Shut Off?
TV Licence
You need to be covered by a valid TV License if you watch or record TV as it’s broadcast, even if you only use a streaming player. It costs £145.50 for a TV Licence. While not a debt, this is a priority as not having one can result in prosecution. Weekly and monthly payment plans are available. Concessions and some exceptions apply. See tvlicensing.co.uk for full details.
Hire Purchase / Conditional Sale
If you do not keep to the repayment terms, then these items could be repossessed, as you don’t own them until all payments have been made. Therefore HP or other contracted payments on essential items are considered to be priority debt and can be included in an IVA as an expenditure item.
Essential items include goods required for basic domestic living, for example, a reasonable car, washing machine or items needed for work.
For more information see Hire Purchase Debt
Income Tax / VAT / National Insurance Arrears
Evading payment means that bailiffs may arrive ay your home or you could face imprisonment. If Her Majesty’s Revenue and Custom (HMRC) thinks there is little prospect in payment being forthcoming, then bankruptcy proceedings may follow.
For more information see Tax Arrears and HMRC Debt
Magistrates Court Fines
Failure to pay the court fines could lead to bailiffs being sent to your home or imprisonment. The debt can also be deducted from your wages or benefits. Such fines can be included in an IVA as an expenditure item unless bailiffs have already entered your property and marked items for removal. In which case, the debt must be settled under the court’s terms, or you will lose some of your possessions.
For more information see Debts From Fines – Treatment In Insolvency
Child Maintenance Arrears
This is a serious priority debt because if you fail to maintain the payment levels determined by the Child Maintenance Service, they can instruct your employer to make deductions directly from your wages or apply to the magistrate’s court for a liability order.
For more information see Child Maintenance Arrears
Priority debts in an IVA
In an IVA, ongoing priority debt payments and any catch-up payments for arrears are expenditure items to ensure affordability and payment in full.
In the context of an IVA, debts are referred to as either an expenditure item or included as a creditor.
An expenditure item
When entering into an IVA, a calculation is made to determine your available disposable income. This establishes how to much you to have to pay towards your non-priority debts once you've paid for your living expenses, important obligations and priority debts. Your available disposable income is how much you pay into the IVA.
So, priority debts and other important obligations are said to be excluded from an IVA but are an expenditure item used to determine the IVA payments.
Included as a creditor
A creditor in an IVA represents a negotiable debt. It is these debts which are said to be included as a creditor in the IVA and cleared once the IVA completes.