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What is a Charging Order?
This is an order of the court to put a charge on a debtor’s property whether house or land for any outstanding money owed to a creditor.
A charging order makes an unsecured debt into a secured debt on your property if you have not kept to the original creditor agreement by order of the court. This means when you come to sell your property you will not get any proceeds from the sale until the debt has been paid in full.
Many people at risk from receiving a charging order are homeowners and have multiple debts including credit cards and loans and simply do not have enough money at the end of the month to cover the minimum repayments.
There has been a marked increase in the numbers of creditors using charging orders as a way of ensuring they receive their money in full. In the past five years there has been a substantial increase in debt problems and many financial institutions have had to write off large amounts of consumer debt due to them.
What are the Creditors Rights?
Taking out a charging order effectively gives the lender priority over other unsecured debts. It means this debt will have to be settled in full plus costs and interest when the property is sold.
At the moment, a judge will not grant a charging order unless the debtor has had a previous judgment ordering them to pay and defaulted on it. It may be they have failed either to pay the judgment debt in full or, where the court has approved payment in instalments, they have failed to pay one or more of these.
To obtain a charging order the creditor first needs to apply to the court for an interim charging order. No notice is required and the judge can grant the interim order without the debtor attending the hearing if he is satisfied that there are grounds for it. The judge will then set a date for the final hearing. The debtor must be given at least 21 days notice.
What are my Options
At this stage it is vital that you seek professional advice if you have not already done so.
If this is your only debt and you cannot the find the money to settle it, the order will simply secure the debt on your property and make your position worse. You can still reach an agreement to pay by instalments but the legal and court fees and any interest that the judge decides will be added to it.
If you have more debts which you cannot afford to pay, you may be better off proposing:
- An Individual Voluntary Arrangement - a formal process which, with creditors’ consent, will allow you to pay your debt in affordable instalments over a five-year period
- A Debt Management Plan – an informal arrangement with your creditors to repay a single affordable monthly amount
Interim Order
An interim order is a useful tool to protect individuals from charging orders as it will prevent the final hearing for the charging order taking place, as well as stopping bankruptcy petitions or bailiffs taking possession of their assets.
The most important advice is to seek help from organisations such as Debt Plan Direct who operate a national free advice helpline on 0845 055 8152.
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