Priority debts
The law gives different creditors different ways of getting their money back. In extreme cases these can even include repossession of your home, imprisonment or bankruptcy. Although some creditors can take action without going to court – like utility suppliers and the Inland Revenue – most have to follow court procedures. This means you will have notice of what is planned and a chance to resolve it. It is worth noting that a recent change to insolvency laws means that with effect from April 2004 both the Inland Revenue (income tax and national insurance) and Customs & Excise (VAT) will no longer have preferential status. These are the debts that must come top of your list. They include any mortgage, second mortgage or loan that is secured against the value of your home because it is important to keep the roof over your head. Utility companies are also regarded as a priority. In the case of gas and electricity the companies can cut off the supply though this usually happens only in extreme cases. More often they will come to an arrangement such as installing prepayment meters. You can be imprisoned for not paying magistrate’s court fines, maintenance payments or council tax.
Secured debts
Mortgages and certain personal loans are secured against your home. That means, if you fail to pay these debts, your home could be repossessed and you could be evicted and the home resold to pay what you owe. If the proceeds of the sale are insufficient to cover the full debt you can be chased for the balance provided action against you is started within 12 years. Things bought through hire purchase agreements are often secured against the loan and could therefore be re-claimed if you do not keep up the payments.
Unsecured debts
These include all other personal loans, credit card debts and the like. Although the company to which you owe the money can take you to court, they will normally try to reach an agreement with you to pay off your debts over time without involving the court. Even if they do go to court, you will only be expected to pay what you can afford.