Where debt payments fall into arrears, creditors are increasingly applying for charging orders which will secure the debt against a homeowner’s property. 

A charging order is an order from the court which puts a legal charge against the debtor’s property for the value of an outstanding unsecured debt. The effect of the charge is to turn an unsecured debt such as a personal loan or credit card into a secured debt.

In order to be at risk of a charging order, you must be a home owner. If you are living in rented accommodation or with a member of your family, then there is no risk of getting a charge as you have no property to secure it against.

If you are a home owner and you start to struggle to repay your unsecured debts, there is a risk that you may eventually get a charging order.

County Court Judgement must be defaulted

Before a charging order becomes possible a creditor must first take out a County Court Judgement (CCJ) against you. Once a CCJ is in place, you have the opportunity to repay your debt as agreed with the court.

A creditor can only apply for a charging order if you fail to make the agreed payments in a county court judgement.

A such, if you receive notification that a creditor is applying for a CCJ against you, it is vital that you respond accordingly with a proposal of how much you can pay on a regular basis (even if this is just £5 a month).

You must then maintain the payments that have been agreed.

If you do not maintain your county court judgement payments, then the creditor can apply for a charging order which will normally be granted by the court.

Protection for creditors against IVA and Bankruptcy

A charging order will have the effect of reducing the equity in your property. However, it is very unlikely that the creditor will be able to force you to sell. In order to do this, they would require an order of sale from the court.

Generally courts want to avoid the forced sale of property. Most creditors understand this. However, they are still keen to apply for a charging order simply to ensure that their debt becomes secured and will eventually be paid in full when the property is sold.

This protection has become far more important for creditors in the last 5 years. During this time, the number of people resolving their debts with individual voluntary arrangements or bankruptcy has significantly increased.

Traditionally these actions will mean that unsecured creditors will have to write off a significant amount of the debt they are owed. If the debt has been secured against a property, the risk of having to write it off all but disappears.

With the increase in the number of people choosing to resolve their unsecured debt problems with solutions such as individual voluntary arrangement, it is no wonder that creditors are taking action to secure unpaid debts where they can.

Given this, if you are a home owner, it is very important to understand the risk of receiving a charging order and that this is a very real possibility if you receive a CCJ and fail to pay it as ordered.