Is that debt is a priority? Could you get a CCJ for it? Why isn’t it on your credit record? If you have problems with your debts, it helps to understand why different debts sometimes have to be handled differently.
Getting one wrong could be a big mistake!
Here is a quiz, seeing if you can place some debt examples into the right place on the diagram below. Whether you think you are a debt expert or it just looks confusing, have a go… The answers page explains what goes where and why.
If you are a debt adviser, make the quiz more of a challenge by getting a piece of paper and trying to write down some debts in each of the areas without looking at my examples.
A brief (no legal jargon!) explanation of my four terms:
- Priority = a debt that is important, because something bad can happen if it’s ignored.
- Legal = any debt where there is a balance unpaid.
- Enforceable = any debt where you may be taken to court and are likely to lose.
- On credit file = any debt of yours that is showing on any of the three credit reference agency records.
What are the eight different areas?
Some combinations are impossible – all priority debts are enforceable in court; all enforceable debts have to be legal debts.
But the following combinations are possible:
- priority debts which are not on your credit record
- priority debts which are on your credit record
- Non-priority debts which are enforceable and on your credit record
- Non-priority debts which are enforceable but not on your credit record
- legal but non-enforceable debts which are on your credit record
- legal but not enforceable debts which are not on your credit record
- on your credit record but not a legal debt
- not in any of the above groups.
Here is the diagram again:
Where on the diagram do these debts belong?
All these examples are for someone living in England, Wales or Northern Ireland. The same general diagram may apply in other countries, but the types of debts, the timescales and credit recording may be very different.
Below is a list of debts (A-W) that all belong somewhere on the diagram – but in which section?
A) Council tax arrears from last year.
B) Three year bank loan taken out a year ago.
C) Credit card you defaulted on seven years ago where you have been making token payments ever since.
D) British Gas debt from a house that you left eight years ago.
E) Letter from a debt collector about a Talk Talk account which isn’t yours.
F) Credit card debt included in a Debt Relief Order that started six months ago.
G) Your PCP car finance that you are up to date with.
H) A bank loan from 2009 which you stopped paying four years ago, where the debt collector can’t find the Consumer Credit Act agreement.
I) A credit card you haven’t paid anything to since you defaulted nine years ago.
J) Your mortgage.
K) A catalogue debt you defaulted on two years ago and paid in full last year.
L) Unpaid income tax.
M) Current electricity bill which you can’t pay.
N) Your overdraft.
O) A 4 year old bank loan you settled with a full & final settlement last year.
P) Money you owe a builder.
Q) Mortgage shortfall from when your house was repossessed in four years ago.
R) Bank loan you repaid on time five years ago.
S) Child maintenance that you owe.
T) HP on a car which you voluntarily terminated last year.
U) “Buy now, pay later” deal on a microwave from Littlewoods.
V) Payday loan debt from 4 years ago – you went bankrupt two years ago and were discharged one year later.
W) Credit card account opened ten years ago and managed with no problems for seven years. Now in an arrangement to pay (or DMP) for three years.
The debt quiz answers have my comments on them, looking at why some debts are in which section and when they will move to another section, or disappear completely.
If you are feeling completely lost, talk to a good debt adviser. They will help you sort out which your priority debts are and help you get a plan for your whole situation.