Getting into debt is something that most of us never planned. For many people, getting into debt is a result of one unexpected event such as a job loss or a long term illness. Suddenly, they go from being able to manage their debts to being unable to pay even the essential bills such as council tax.
If debt is something youâ€™ve found yourself in, there is always help at hand. Free services from organisations such as Council Tax Advisors can help you get back on track and deal with your debts.
This article will look at how to manage problem debt, including council tax debt. It will explain the options open to you and tell you where you can get help.
Council tax debt is a priority debt there are serious consequences if you donâ€™t pay it
All debts can be divided into two types priority debts and non-priority debts.
Priority debts include:
- mortgage repayments and loans secured on your home
- council tax
- gas and electricity debts
- certain payments ordered by the courts
- child support and maintenance payments
- TV licence.
You need to pay priority debts because there are serious consequences if you donâ€™t. For example:
- you could lose your home if you donâ€™t pay your mortgage or rent
- you could have your gas or electricity cut off or have to use a pre-payment meter that will make using gas or electricity more expensive
- you could have your non-essential goods seized by a bailiff to be sold to repay your debt.
Non-priority debts include:
- credit card debts
- hire purchase agreements
- unsecured bank and payday loans (loans that are not secured against your home)
- water bills
- loans from friends and family.
As a general rule, not paying a non-priority debt has fewer consequences than not paying a priority debt. However, the person that you owe a non-priority debt to (your creditor) can still take action, so you should not ignore a non-priority debt.
Your creditor can apply for a county court judgement that you will need to stick to. This might include paying back a certain amount each month until the debt is repaid. If you donâ€™t stick to the judgement, your creditor can apply to have the debt enforced. When this happens, there are several possibilities. These include repayments being taken directly from your pay packet or your benefits. Bailiffs could visit your home to collect your belongings to sell them. You could even be declared bankrupt.
When council tax debt is the tip of the iceberg
Because council tax is a priority debt, the creditor (in the case of council tax, this is your local council) is likely to take action more quickly and more strongly than a creditor of a non-priority debt. People working in debt advice agencies report that someone receiving a letter from a bailiff about unpaid council tax is the point at which they seek help for the first time. Debt advisors say that for many people contacting advice services, the council tax debt is just the tip of the iceberg. In many cases there are numerous other bills and debts that have mounted up too. Combined with everyday living expenses, it has become impossible to pay council tax. Unfortunately, this inability to pay council tax is the very thing that has made the problem even more serious and important to deal with.
Help is available for council tax debt
It is an easy thing to say, but not so easy to do. Seeking advice when you are in debt is essential and there is nothing to be ashamed of. Seeking debt advice means you can understand the options that are open to you.
In many cases, it may be as simple as arranging an affordable repayment plan with your creditors. Independent debt advisors such as Council Tax Advisors can help you work out how much you can afford. They can even negotiate with your creditors on your behalf.
There are also more formal options open to you. Weâ€™ll outline them here, but remember that an independent debt advisor will be able to discuss your individual circumstances and advise which one is best for you.
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement (IVA) is an agreement between you and your creditors to pay all or part of your debts using a single regular payment to an insolvency practitioner.
An IVA is arranged through an insolvency practitioner. An independent debt advisor such as Council Tax Advisors will help you to find one near you. You give the insolvency practitioner details such as your assets, your debts and your income. Your insolvency practitioner will use this information to work out what you can afford to repay and how long you will need to make payments for. They will then contact your creditors to ask them if they agree to the IVA. If 75% of your creditors agree, the IVA starts. It applies to all your creditors, even if they did not agree to it.
There are two costs that could be associated with an IVA. You could be charged a set up fee by the insolvency practitioner. You could also be charged a handling fee on each payment you make. Whether or not you are charged these fees will depend on the insolvency practitioner you use. Some independent debt advisors such as Council Tax Advisors will only work with insolvency practitioners that donâ€™t charge the fees.
An IVA gives you more control over your assets than if you declare yourself bankrupt. An IVA also stops your creditors taking any action against you for your debts. If you run your own business, you may be able to keep it running.
On the other hand, if you donâ€™t keep up repayments, your insolvency practitioner can cancel your IVA. They can also declare you bankrupt.
Your IVA will be added to the Individual Insolvency Register. It will be removed three months after the IVA ends.
Debt Relief Order (DROs)
Debt Relief Orders (DROs) are designed for people who:
- owe less than £20,000
- have less than £50 per month spare
- have less than £1,000 of assets (this means homeowners cannot apply for a DRO)
- have lived or worked in England and Wales in the past three years
- havenâ€™t applied for a DRO within the last six years.
A DRO means that your creditors cannot recover their money without permission from the court. You are usually freed from your debts after 12 months.
If you have a DRO you still have to pay your rent and bills plus certain debts such as student loans or court fines.
To get a DRO, you have to go to an authorised debt advisor. Organisations such as Council Tax Advisors can help you find one. The debt advisor will help you fill out the paperwork and will apply to the official receiver on your behalf.
The official receiver charges £90 for a DRO. A charity may be able to help with this cost your debt advisor will be able to tell you if this is the case.
If you have a Debt Relief Order you cannot:
- borrow more than £500 without telling the lender about your DRO
- be the director of a company
- start, run or promote a company without the courtâ€™s permission
- manage a company without telling the people you do business with about your DRO.
If you want to open a bank account, your bank or building society may need to know about your DRO.
These restrictions usually last 12 months, but they can be extended if carelessness or dishonesty caused your debt problem.
Your DRO can be cancelled if your finances improve or if you donâ€™t cooperate with the official receiver (for example, if you donâ€™t give them the information they ask for). If you get a new debt when you have a DRO you could be prosecuted if you donâ€™t tell your new creditors about your DRO. You could also be declared bankrupt.
Your DRO will be added to the Individual Insolvency Register. It will be removed three months after the DRO ends. The DRO will stay on your credit record for six years.
If you cannot pay your debts you can declare yourself bankrupt. There is a different process to declare yourself bankrupt than if you are being declared bankrupt. (Declaring yourself bankrupt is something you do voluntarily. Being declared bankrupt is a process undertaken by your creditors against you.)
You can declare yourself bankrupt by applying to the court for a bankruptcy order.
When the bankruptcy order is issued, you will receive a copy of it. You may also be interviewed about your situation by the official receiver. Your assets can be used to pay your debts. Your name and details will be added to the Individual Insolvency Register. You will also have to follow certain bankruptcy restrictions such as not borrowing more than £500 without telling the lender you are bankrupt.
You will normally be released from your debts and the bankruptcy restrictions after 12 months. Your debts can still be paid with assets that you owned during the period of bankruptcy. You might be able to cancel your bankruptcy before the end of the 12 months. This might be possible if, for example, you have paid your debt in full or taken out an Individual Voluntary Arrangement.
Taking advice about council tax or any other kind of debt is important
If you are struggling with council tax debt or worry that your circumstances will soon mean you will find it hard to make the necessary payments on any of your debts, it is important to take advice from an independent debt advisor. They will be able to help you sort out your debt and get back control over your finances. If you are considering an IVO, a DRO or declaring yourself bankrupt, an independent debt advisor will be able to tell you which option is the best for you in your circumstances. Organisations such as Council Tax Advisors exist to provide free help and advice to people in debt. They can provide practical information. They can also negotiate with your creditors on your behalf. In short, they will help you get your life back on track. So if you have got problem debt, take the first step to sorting it out now contact Council Tax Advisors for expert Bailiff Help and Advice.