Types of Debt

Not all debts are equal, nor are they all the same. 

When we are dealing with problem debt, it is important to identify the type of debt it is that we are dealing with, as how we deal with it will often be determined by the type of debt it is.

Voluntary v Non-Voluntary

One way we could catergorise our debt, is by identifying those that are voluntary and those that are not voluntary. So for example, credit cards, loans and overdrafts (all types of consumer credit debt) could be said to be voluntary, as she have to agreed to these types of debt to be held liable for them.

Other types of debt, like council tax and HMRC debts could, in some senses, be said to be non-voluntary as they are debts you can become liable for regardless of whether you agree with them or not.

This can be important in how the law allows debts to be recovered, as often involuntary creditors (the people you owe money to) get special rights in how they recover money. So for, example, both Council Tax and HMRC are allowed to use the Summary Warrant procedure in Scotland, which mean their doesn’t need to be a Court Hearing before they begin using Sheriff Officer to recover the debt. 

Priority v Non-Priority 

Another way debts can be categorised is as priority and non-priority debts. 

How we do this is by looking at the consequences of not paying your debts. So, for example, the consequence of not paying some debts can have more severe consequences than non-payment of other debts.

Where those consequences are considered to be more severe than normal, those debt may be treated as a priority debt, which means when making offers to them, they may get better treatment than other creditors

Type of DebtConsequence of Non-PaymentPriority/Non-Priority
Credit CardDemand for payment/Court ActionNon-Priority
OverdraftDemand for Payment/Court ActionNon-Priority
Rent ArrearsEvictionPriority
Utility BillsDisconnectionPriority
Council TaxSummary WarrantPriority
Examples of Priority and Non-Priority Debts

Other Differences

There are lots of other difference that must be considered when dealing with problem debts.

For example, if an agreement is a Hire Purchase, Conditional Sale or Personal Contract Purchase Agreement, this is different from a Fixed Sum Loan. The reason why is the first three are usually for a specific item, such as a car or a washing machine. These agreements mean you get the goods, but have to pay them up, but don’t own them until they are paid off.

Alternatively, you can also get a Fixed Sum Loan and buy one of these items. When you finance obtaining an item this way, you then own the goods.

The difference is, with the first example, if you don’t pay, you may have the item repossessed, whereas when using a Fixed Sum Loan, the lender cannot just come and take the item.

There are lots of differences between debts, what effect they have, and what the consequences are when you don’t pay them. This is why it is important to identify first the type of debt you have. You can often do this by obtaining a copy of the agreement you entered. 

Rent Arrears
Rent Arrears
Mortgage Arrears
Buy Now Pay Later
Guarantor Loans
Council Tax Arrears
Council Tax
Overpaid Benefits
Parking Fines
Parking Tickets
Rent to Buy