Question:
Priority debts and non priority debts.?
2006-10-19 12:52:41 UTC
In the UK here, btw. So not interested in US law.

Priority debts are things like bills,mortgage/rent, council tax and other things that have to be paid or you end up homeless,

Non priority debts are things like credit cards, loans etc where the creditor doesn't actually have the power to repossess you etc.. This I know.

National Debtline says that if you cannot afford to make your full repayments on all your committments, you have to pay your priority debts first and then anything thats left over you divide up amongst your non priority creditors.

If, after paying your priority debts, you have nothing left to pay your non priority creditors, and you have written to them and showed them your income/expenditure etc, and asked for payments to be suspended can the non priority creditors still take you to court? And if they do, would the judge order an attachment of earnings etc that would not leave you with enough to cover your priority debts so you become homeless etc?
Seven answers:
2006-10-19 22:22:44 UTC
You and those who have thus far replied to your query seem confused about the significance of "priority of [preferential] debts".



These are those debts listed in part XII of the Insolvency Act 1986 (sec. 385 and following) in relation to distribution of assets of a bankrupt individual or company. Outside of bankruptcy nobody is obliged to take notice of such an order in distribution. Ian Fletcher says (The Law of Insolvency, 2d ed., pp. 287-88),



"After the creditors have had the opportunity to lodge their proofs and these have been processed by the trustee, the Act prescribes that the distribution of the first and any subsequent dividends should take place whenever the trustee has sufficient funds in hand for the purpose. On each occasion when a dividend is declared and distributed the trustee is required to retain such sums as may be necessary for he expenses of the bankruptcy. He must also make provision, in calculating a dividend, for any bankruptcy debvts which appear to be due to persons who, by reasons of the distance of their place of residence, may not have had sufficient time to tender and establish their proofs, and for any dbts which are the subjects of claims which have not yet been determined, and likewise for disputed proofs and clams.



"It is by no means the case that all the funds in the trustee's hands will simply be distributed amongst all the proving creditors in equal proportions, for the law divides the debtor's liabilities into a number of separate categories, to each of which the funds of the estate are to be applied successively in a well-established order of priority. Since it is possible for the liabilities which enjoy first or early priority to be so large as to swallow up all the funds, the general body of ordinary creditors may in many cases receive little or nothing."



...



"(A) Priority of Distribution of Assets



"The categories of liabilities to which the funds are to be applied are, in order of priority:



(1) The expenses of the bankruptcy

(2) Pre-preferential debts;

(3) Preferential debts;

(4) Ordinary debts;

(5) Interest (accrued since the commencement of bankruptcy);

(6) Postponed debts;

(7) Surplus (payable to the bankrupt)."



Pre-preferential debts relate to certain employees' wages. Preferential debts are certain taxes and contributions to occupational pension schemes and state social security, and arrears in wages to employees (and levies on coal and steel production, relevant in few cases, all industrial ones).



Thus: outside of bankruptcy there is no such thing as "priority debts" except insofar as a creditor can be made to know that if it makes you bankrupt it will gain nothing. In fact, paying such a complaining or threatening creditor ahead of others could be a "preference" in another bankruptcy sense: recoverable by a trustee in bankruptcy for the estate to be shared out among all creditors.



You have your definition ("mortgages/rent" etc.) confused. There is no protection against foreclosure or eviction in bankruptcy or out of bankruptcy. Law relating to homelessness is a matter of council obligation, not creditor forbearance.



You are confusing "secured debt" vs. "unsecured debt" with priority in distribution of assets.The holder of secured debt gets custody of the security, whatever that may be, so long as the security is perfected.



It may be -- since you mention the USA (albeit as irrelevant) -- that you are confusing "exemptions" with "priority" in some way. In the USA (and to a tiny extent in England/Wales/N.I./Scotland) there are exempt assets: in the UK that's tools of the trade. In Florida, Texas and a few other states it is, indeed, your "homestead" (although the extent of homestead protection was greatly limited in last year's Bankruptcy Code amendments (to $135,000)). Even so, US exemptions even in low-exemption states such as Illinois and Ohio are far above UK levels. If you are curious about this you can Google "bankruptcy exemptions" and find explanations of US and Canadian allowances -- but they don't help you of course.



As for judges ordering attachments: once you are in bankruptcy (or an IVA if your creditors agree -- these are increasingly popular with consumers and their creditors, although originally intended for small businesses) unless your discharge is "conditional" there is no attachment possible of future earnings. Discharge is normally automatic after one year.



As others have said, it would be best for you to contact a CAB. So called "debt-relief" agencies are mostly scams, and much of which you pay them -- in fact everything you pay them for the first month or months -- goes to them and not to your creditors. Such agencies will NEVER be forthcoming to you. And often they won't contact your creditors either.



What you seem to need is creditor forbearance. This really isn't something you can accomplish by yourself unless you are very organized, and happen to be the victim of unfortunate circumstance, such as layoff or illness or accident.



Good luck.
2006-10-22 20:19:27 UTC
The court should only make you pay back what you can afford after your rent/mortgage is paid.



Your creditors can come after you and take you to court but they almost definately will not because, if the financial statement is done properly, they will know that there is no way that they will get anything out of the exercise.



http://www.flmloans.co.uk/debt-help.php
2006-10-22 18:41:32 UTC
Yes, they can. Sounds to me like you need more advice the National Debtline. You might consider the IVA route............Individual Voluntary Agreement or bankruptcy. The difference it that with IVA you pay of more of the outstanding capital, bankrutcy is cheaper, in financial terms. Main problem is that if you are a house owner/part owner your creditors can come after your assets. With an IVA they work out what essential outgoings you have including things like food, rent/mortgage and then work out what you have left that you can afford to pay back. The IVA usually lasts 5 years but after that your debts are deemed honoured.
sky
2006-10-19 20:08:33 UTC
Go to your local CAB..they sorted out all my debts for me, priority and non priority, i pay the non priority £1.00 each per month, once they are involved your creditors will end up backing off and accepting what you have to offer..
2006-10-19 19:59:10 UTC
NO!!! Now then get yourself down to the Citizens advice bureau and they will define everything exactly, and even speak to all your debtors to keep them off your back, and some of these non priority debts can even be wrote off if you are lucky or offered the most smallest of amount per week, they will sort it for you and they have a lot of weight behind them, allow them to help you. Good luck
phooey
2006-10-19 20:05:42 UTC
No, making you homeless won't help anybody.

Resulting CCJ's or similar won't be helpful but they won't kill you or make you homeless.

You are correct to pay priority debts first.
bobonumpty
2006-10-22 07:05:59 UTC
go bankrupt spend spend spend have fun then let them sing for your money its hard but eventually you will be clear they don't care but will you its legal theft responsibility its in your court


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