Payment plans
Suppliers calculate an amount which you are required to pay on a weekly, fortnightly or monthly basis. This figure includes an estimated amount for current consumption and an amount for arrears.
Many suppliers add your arrears to your estimated annual consumption and then divide by 12 for a monthly figure or by 52 for a weekly figure. You may be told that this is the figure the computer says you have to repay in order to ensure that you will repay the arrears within a year. This is an arbitrary figure chosen by the supplier and has no legal basis. Often, the use of this formula means that you may be required to repay the arrears at a faster rate than you can afford. The overriding principle is that the method and rate of repayment should take account of your ability to pay.1Condition 27.8 SLC and codes of practice from suppliers If, for example, you can only afford to repay £3 a week, the supplier should simply add this figure to your estimated weekly consumption. It is also important to ensure that the amount estimated for current consumption accurately reflects your use of fuel and that the supplier does not attempt to recover the arrears more quickly than you can afford by overestimating your consumption.2Condition 27.15 SLC Ensure that you read your meter each quarter so that you can accurately track your consumption and, if necessary, ask for a review of the rate of your payments. If you have not previously had any difficulty with your bill or you have previously been able to manage a payment plan, you should not be refused this as your preferred option. If paying regularly via PayPoint is convenient for you, say so.
Before contacting the supplier to implement a payment plan it is useful to complete a full financial statement outlining your income and expenditure (see below). This shows you exactly how much disposable income you have. Use this information to work out how much you can afford to use to repay your energy debt. Once you have this figure, do not agree to a payment plan for more than this. This is for two reasons: firstly, you may try to meet these unrealistic and unequitable payments to the detriment of feeding, heating or clothing you or your family. Secondly, if you fail to meet the payments it may make your debt situation more complex, and could prejudice any future negotiations with your supplier. Therefore, resist any attempts, however persuasive, by your supplier to agree to a payment plan that is for more than you can realistically afford.
If you do not keep to the first payment agreement made, your supplier is likely to insist you have a prepayment meter rather than renegotiate a further arrangement. However, if there are legitimate reasons why an arrangement has been broken, such as a change of circumstances, this should not disqualify you, particularly if it is the only or most suitable method for you.
Some suppliers may allow you to have a payment plan in conjunction with a prepayment meter set to pay for current consumption only.
Preparing a financial statement
Stage 1: Work out your income and essential expenditure
Firstly, add up all the money you have coming in from your household income streams: wages, benefits, maintenance and any other income every week or month, depending on how you are paid. Check that you are receiving all the benefits to which you are entitled, available discounts and exemptions are afforded to you and that you are not paying too much tax. A free local advice agency, such as a law centre, Citizens Advice or welfare rights service, can help you with an income maximisation and benefit calculation. You can also get this assistance on the telephone from National Debtline free of charge. This is important because it could give you access to additional support, such as a Warm Home Discount.
Secondly, work out what you spend each month on essentials. Ignore any payments for arrears at this stage. Include your normal payments for the following items:
– rent or mortgage and any other loans secured on your home;
– gas (your average weekly or monthly bill over the last year);
– electricity (your average weekly or monthly bill over the last year);
– council tax;
– water charges;
– childcare;
– transport to work;
– food;
– clothing;
– other regular household expenses – eg, telephone, internet, insurance etc.
Be realistic, and remember that payments for housing arrears are a priority – eg, rent or mortgage. Work out what you need to live on over a long period and not over a week. Do not include current payments on loans, credit agreements or catalogues.
When you have done this, deduct the total of your expenses from your total income. The difference is what you have available to deal with your debts. If this is nothing, or your expenses are more than your income, seek advice.
Stage 2: Work out your debts
Make a list of everything you owe to everyone. Include:
– arrears of rent/mortgage;
– arrears of gas/electricity/water/telephone bills;
– the total amount owing (not just the arrears) on loans, credit cards, catalogues, credit agreements, etc.
Some debts must take priority because there are serious consequences if you cannot pay them. For most people these are:
– rent, mortgage or secured loans;
– council tax;
– magistrates’ court fines;
– arrears of child maintenance.
If you are in arrears with any of these, contact the people and/or organisations you owe and try to arrange affordable repayments. If you explain your position fully, including any vulnerabilities you may have, they usually allow you a period to pay off your arrears. This may be a long period of time – particularly if you are in receipt of a means-tested benefit (see Chapter 11) or you have a low income. You may be able to reach an agreement to pay off mortgage arrears over the remaining term of the mortgage.3Cheltenham and Gloucester Building Society v Norgan [1996] 1 All ER 449 If you cannot reach an agreement, or if you think you have agreed to something you cannot afford, seek advice (see here). Deduct the total of what you have to pay on these priority debts from the amount you had available to pay all the debts. If there is nothing left, seek advice.
Now divide what is left fairly between all the other people you owe money to.
Stage 3: Work out how much to pay your creditors
To work out how to share this money between your creditors, there is a basic pro-rata rule: the more money you owe to one creditor, the bigger share that creditor gets.
Add up all your debts (except the priority ones you dealt with at Stage 2).
Next, work out what percentage of your total debt is made up by each individual debt. For example, if your total debt is £2,400 and you owe British Gas £120, the percentage of the total debt owed to British Gas is:
£120 x 100 = 5%
£2,400
Take that percentage of the weekly or monthly amount you have available to pay your debts.
In the example above, if you have £15 a month available for debts, you should pay British Gas 5 per cent of that: £15 x 5% = £0.75 a month.
Once you have worked out all these details, contact all of your creditors. They all need to see your financial statement to understand why you will only be making a small payment to each of them. Fuel suppliers ought to accept whatever you can afford to pay using this calculation. They may try to argue that they should be priority creditors, but they must accept what you can reasonably afford to pay. Your electricity supplier may have adopted a policy of accepting low rates of repayment on a pro-rata basis with other creditors when revising its code of practice. Check your supplier’s code of practice.