Consider the options
Although the decision to give one debt priority over another is to some extent a subjective one, you should always discuss with the client the range of options available and the possible consequences. Workthrough the following list of tasks.
•In the case of secured loans, hire purchase/conditional sale agreements and loans secured by bills of sale, check whether the client has payment protection insurance to cover the repayments in the event of sickness or incapacity, unemployment, accident or death. If the client does have insurance and the policy covers their situation, advise the client to make a claim. If the claim is refused, consider whether this can be challenged and/or also whether the policy may have been mis-sold (see here). If the policy does not cover client’s situation, also consider whether the policy may have been mis-sold – eg, the client’s circumstances were such that they could never have made a claim. If the agreement is regulated by the Consumer Credit Act 1974 and the client says that taking out payment protection insurance was a condition of being granted the credit, the agreement may be unenforceable (see here). •In the case of secured loans, hire purchase/conditional sale agreements and loans secured by bills of sale, investigate whether the lender complied with its duty to assess the client’s ability to repay in accordance with guidance produced by the appropriate regulator – eg, the Irresponsible Lending Guidance produced by the former Office of Fair Trading (if the loan was made before 1 April 2014), section 5 of the Financial Conduct Authority’s (FCA’s) Consumer Credit Sourcebook (if the loan was made after 1 April 2014) or sections 11 and 11A of the FCA’s Mortgages and Home Finance: Conduct of Business Sourcebook (if the secured loan is a regulated mortgage contract made on or after 21 March 2016: see here). •As well as the above, in the case of both secured and unsecured credit debt, check whether the lender has provided appropriate forbearance to the client in accordance with the FCA’s tailored support guidance relevant to the particular debt (see Chapter 4 for further details). •In the case of tax, VAT or tax credit overpayments, consider what method of enforcement HMRC is using or threatening to use. Bear in mind in the case of tax credit overpayments that recovery from an ongoing award or by amending the client’s pay as you earn code reduces the amount of surplus income the client has available to make offers to other creditors.
•Consider whether the client has any other grounds for challenging either the debt or the creditor’s conduct (see Chapter 5 and below). •Consider telephoning the creditor as soon as possible, even if the client does not have all the necessary information on which to base a strategy. This may help prevent further action and alert the priority creditor to the involvement of an independent agency. Invoke the 30-day ‘hold on action’ provisions referred to in the Consumer Credit Sourcebook.1FCA Handbook, CONC 7.3.11R and 7.3.12G •If necessary, take emergency action to prevent the immediate loss of home, liberty, essential goods or services (see here). •Negotiate the amount, manner and time of repayments.
•Ensure the client is clear about who to pay, when to pay and how much to pay.
•Encourage the client to seek further assistance from you if they are facing practical difficulties with repayment arrangements.
•Monitor the initial strategy with the client. If the client’s circumstances change or the original strategy is unsuccessful, you and the client must decide whether to adopt a new strategy or to modify the details of the original strategy.
Consider carefully the amount of income included as ‘available’ to the client. The fact that a debt is a priority may influence how a partner’s income is treated. A partner may not wish to pool their income and liabilities if only non-priority debts have been accrued (and there is no need to – see here). However, if serious consequences, such as loss of home, could be experienced by the client’s partner, they may wish to contribute towards repaying a debt for which they are not legally liable. This situation can also occur when a debt arose while someone was with a previous partner.2See P Madge, ‘Till debt do us part’, Adviser 71