Priority debts
Mortgage and rent arrears
Your mortgage provider or landlord has the right to take possession of your home if you fall behind on the repayments, but most will only do this as a last course of action. You may be able to agree an acceptable repayment plan so talk to your lender or landlord. If you feel that your financial problems are likely to last for a while or you have any concerns, get expert independent advice as soon as possible.
What you can do
Ideally you should be looking at ways to reduce your arrears. If this isn't practical because of your situation you may be able to do one or more of the following:
- Talk to your lender about whether you can reduce what you pay or delay paying your arrears temporarily.
- Check whether you are entitled to any benefits or qualify for government mortgage rescue schemes by visiting www.directgov.co.uk
- You may be able to switch to an interest-only mortgage for a time or take a 'payment holiday' - but take advice from your lender or an independent expert so you understand the consequences.
- If you are a tenant, talk to your landlord in order to try to negotiate an acceptable repayment. Alternatively, get expert advice on the terms of your tenancy agreement.
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Hire Purchase agreements
HP agreements are usually associated with car purchases and differ from standard credit agreements in that you do not own the item until you've paid off the final instalment. If you fall behind on your repayments, your lender could repossess the goods, in some cases without a court order.
What you can do
- Talk to your lender. They may accept a temporary payment reduction or agree to the full payment of your arrears over a number of months. Alternatively, you can opt to surrender the goods - but be aware that there may be further costs to pay.
- Check your agreement for details of how much you need to have paid to prevent your lender repossessing the goods without a court order. Typically, if you have paid a third of the total, they become 'Protected Goods' and your lender cannot repossess them without a court order.
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Council Tax, National Insurance, income tax, child maintenance and court fines
It's vital that you continue paying all of the above as the penalties for non-payment are severe and, in some cases, can be imposed on you without a court order. Ignoring demands can result in bailiffs removing goods from your home, automatic deduction from your wages or benefits, imprisonment or bankruptcy.
What you can do
You should always be notified well in advance of any action being taken, giving you time to explain your situation and make agreements to repay these debts. Consult an independent debt adviser, some of which are detailed in our Useful Contacts section.
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County Court Judgments
If you don't make payments to reduce your debts, fail to keep to your repayment arrangement or your lender refuses to accept the amount offered, your lender may apply to court to get a County Court Judgment against you.
What you can do
You will be sent a Claim Form that details the amount your lender claims you owe and gives you an opportunity to reply. Check the details thoroughly, ensuring that you agree with the amount that your lender is claiming and make sure that you know how much time you have to respond.
If you can afford to pay the debt in full at this point, make the payment and no further action will be taken. Otherwise, use the 'Admissions Form' (N9A) if you accept the amount your lender claims you owe and want to repay the debt in agreed instalments.
Fill in the 'Defence and Counter Claim' Form (N9B) if you are going to dispute either part or the entire amount claimed and/or if you don't agree with any additional costs that may have been applied.
Demonstrate that your repayments are realistic by using your Budget Plan. If your lender still turns down your proposal, the court will determine the repayment amount. If necessary, you can re-apply to the court for a reduction if your payments are set at a level you can't afford.
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Enforcement options
If you don't keep up repayments after a Judgment from the court, your lender can ask the court to grant a number of enforcement options, which are listed in more detail in the 'Your questions answered' section of this brochure. You may still be able to reach an agreement with your lender even now, but it is advisable that you seek independent advice as soon as possible.
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Next Section: Working out your budget