A Simple Guide To The Different Type of Bad Debts

A Simple Guide To The Different Type of Bad Debts - By: James Miller, Posted on: 2008-01-24

To thoroughly understand this article, here is a range of definitions of common terms you will come across. A bad debt is borrowing where what is owed has not been paid back in accordance with the terms and conditions of the lending agreement. A debt is considered bad where is it not likely that the loan provider will ever get their money back. Having a bad debt on your credit file will make it harder for you to borrow at a future point.

The National Debt Line is a countrywide helpline. It offers free, independent and private counsel to individuals on handling debt difficulties in Britain. Their telephone helpline is available each and every day of the week and they also host a website that has a great deal of constructive assistance and support on it. National Debtline is part of MAT (the Money Advice Trust, which is a registered charity. The Money Advice Trust presents consumers a structured process to handling severe debt so that they might regain control of their finances.

There are two types of debt - priority debts and non-priority debts. If you are experiencing financial difficulty and are unable to service all your debts, it is important that you understand the type of debts you have. That way, you can make sure that any money you have left every month to pay for debts goes towards the most important (ie: the priority debts) first.

Priority debts
These debts are where the companies you owe money to - the creditors - have the power to take severe legal actions against you if you fail to pay. The amount of the debt does not make it a priority, but what the creditors can do to recover their money from you that makes it a priority debt.

Examples of priority debts:
. Mortgage arrears - your mortgage lender can repossess your home
. Rent arrears ? you can be evicted by your landlord if you are in arrears
. Fines - fines such as those for traffic offences or magistrates court fines - child support, maintenance, council tax or rates. The Court can instruct bailiffs to possess your goods. If you still owe money after this, you can be sent to prison
. VAT and income tax - you can be imprisoned for non-payment of income tax or VAT or at the very least, made bankrupt
. Hire purchase - it depends on what the item, is, but, for example, it will be a priority debt if it is a car and you need it to get to work - if you do not pay the debt, it will be repossessed.
. Utility debts (eg gas, electricity debts) - your utility supply will be disconnected

These need to be repaid before your non-priority debts, so do not offer to repay any of your non-priority debts before dealing with these.

For non-priority debts, you are unlikely to lose the roof over your head or get imprisoned. However, you still do need to make an offer to pay ? otherwise your creditors will still take you to Court - and could send the bailiffs in.

Examples of non-priority debts:
. Overpayments on benefits
. Arrears on credit or store cards
. Overdrafts and loans (unless the loan is secured against your property, then it becomes a priority debt)
. Catalogue arrears
. Hire purchase - goods on HP that are non-essential, such as sofa or audio equipment

Article Source:- Directory Submission & Sexy Deepika Padukone

James Miller has plenty of experience writing good and insightful articles not only related to compare car loans and car insurance but also in some way relevant to Halifax mortgages.

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