Prioritise the debts
Immediate contact should be made with the creditor. If it is not possible to make a definite offer of payment immediately, ask for more time (eg, 30 days) and ask the creditor either to take no further action or to suspend any existing action during this period. If possible, the client should be advised to pay at least the current instalments in the meantime.
Generally, it is not appropriate to make offers to priority creditors on a pro rata basis (see here) or to include priority debts in a debt management plan (see here), and you must negotiate with them individually. It must first be decided whether to make payment: •either as soon as possible; or
•over as long a period as possible.
Clients may not be in a position to make payments towards all their priority debts and so they will need to prioritise their priority debts. In this situation, it is important to consider income maximisation and financial capability options (see here and Chapter 7). The following should be taken into account. •If the debt is accruing interest or charges, it may be in the client’s best interests to pay it off quickly.
•It might be in the client’s best interests to pay off a small priority debt as soon as possible.
•The creditor may insist on arrears being cleared before the next bill is due to be delivered or payment made.
•If the client is currently earning above her/his average wage, it may be in her/his best interests to make higher payments while s/he can.
•If capital or lower cost finance is available, the debt can be cleared more quickly.
•The client’s age or state of health may lead to a reduction in income. It could be in her/his best interests to make a payment before this happens.
•If the client is considering moving, it may be necessary to make a payment before doing so.
•If the client has any non-priority debts, s/he may need to make some provision for these, depending on her/his chosen option for dealing with non-priority debts (see Chapter 9).
You should also further prioritise the debts in the light of:
•what the client wants;
•the existence of more than one priority debt;
•the severity of the sanction available to the creditor;
•the potential consequences of using a particular strategy;
•the stage the recovery process has reached.
You should also consider the following points:
•Although many priority creditors have their own collection policies, which act as guidelines for their officers, these can always be negotiated. A refusal to negotiate could give rise to a formal complaint – see, for example, the government guidance to councils on collection of council tax (see here). •It may be necessary to contact someone in a position of authority within the relevant organisation before policies can be changed.
•Accounting periods, such as local authority financial years or other periods between quarterly bills, should not be taken as absolute dates by which current liabilities must be met.
•Lenders of secured loans often argue that arrears should be repaid in short periods. However, in an important decision, the Court of Appeal suggested that areasonable period to clear arrears might be the whole of the remaining term of the mortgage.1Cheltenham & Gloucester v Norgan [1996] 1 All ER 449 (Adviser 53 abstracts) So, if a possession action was started half way through a 30-year mortgage, it would be possible for the court to suspend an order on payment of an amount which would repay the mortgage together with the arrears over the next 15 years. On the other hand, if the secured loan is a regulated mortgage contract treated as regulated by the Consumer Credit Act 1974, the client may be able to apply for a time order (see here and here). The lender should also have complied with section 13.3.2AR of the Financial Conduct Authority’s Mortgages and Home Finance: Conduct of Business Sourcebook. This requires the lender to make a reasonable effort to come to an agreement with the client to pay the arrears over a reasonable period (in appropriate cases, the remaining term of the mortgage) and, if no reasonable payment arrangement can be made, allow the client to remain in possession for a reasonable period to organise a sale, and to repossess the property only if all other reasonable attempts to resolve the position have failed.
The client should be advised to:
•start making payments immediately when the strategy has been decided, as this encourages the creditor to accept the arrangements; and
•where possible, set up a direct debit or standing order to ensure a payment arrangement is kept.
Creditors should be asked to confirm the agreed strategy in writing. They may often require a financial statement (see here), list of debts and written proposal before providing such confirmation. However, a delay in providing confirmation is not a reason for withholding agreed or offered payments.