When householders signed up for credit cards or personal loans, no doubt they were told that these types of borrowings were ‘unsecured’. This means that they are not attached to any belongings or property owned by the borrower, and that if they could not be paid back there would be no risk to their homes.
Under legislation brought in by the coalition government, unsecured debts of as low as £1,000 could be attached to property and could, ultimately, force homeowners to sell their properties. The introduction of a threshold was expected, but was promised in the Coalition Agreement 2010 to be much higher, at around £25,000. After a policy U turn, the actual threshold that has been brought in is just £1,000, putting more homes at risk.
Previously lenders were unable to seek a charging order if the debtor was sticking to the terms of a repayment plan or County Court Judgement (CCJ) conditions. Under the new regulations creditors have been given a fast track route to obtaining charging orders, even if the householder is sticking to the terms of their repayment plan.
What is a charging order?
A charging order is the next step in debt recovery after a CCJ has been issued. Charging orders allow previously unsecured debts to be secured against the property of the debtor and can be recovered through the sale of the home. A charging order cannot force the person to sell their home; this is only possible through a ‘sale order’ which can only be issued by a judge. As the average CCJ Is valued at around £3,000, it is unlikely that many creditors will seek sale orders and force people out of their homes.
How do creditors get a charging order?
Charging orders take place in stages, and require a CCJ to be issued before they can be sought.
- The creditor applies to the court with proof from the land registry that the house is owned or part owned by the debtor.
- If the court is in agreement that the house is indeed the property of the person who owns the debt, they can issue a charging order to them.
- The debtor is sent a court form number N379 which details the charging order made on the property.
- The land registry themselves place a restriction on the property which will notify the courts in the event of a sale of the house.
After this, the homeowner will be invited to a hearing where they will be given a change to explain why they are in debt and what steps they plan to take to resolve the situation. At this stage conditions can be attached to the charging order, such as the householder not being forced to sell their home as long as they stick to a payment plan.
Can you be forced out of your home?
Orders for sale are very rare. In 2012 there were 897,710 CCJ issued, of which 59,468 progressed to becoming charging orders. Of these only 273 ended in an order for sale, with the majority resolving the situation via payment plans or other means.
The main risk from a charging order is the loss of investment in your home. A charging order will stay with you for the duration of your occupation of the property, so should you decide to move or ultimately pass away, the equity in the property would be used to repay your debt. Over the course of a charging order, there is always the opportunity to make repayments towards clearing your debt, so should your situation improve there is a way to have the order removed.
What should you do if you receive a charging order?
It’s always best to tackle these problems before they get to this late stage, so if you have outstanding CCJ’s that you think could be affected by the new charging order regulations you should seek advice sooner rather than later. However, if you have been issued a charging order, there are a number of steps you can take to avoid losing your home:
- Keep the lines of communication open: Speak to your creditor, the courts and attend all the hearings and sessions you are invited to.
- Request a repayment plan: Even if you feel money is really tight, a token payment of just a few pounds a week can often be enough to stop creditors taking the process to the next stage.
- Get professional advice: Speak to a money advice charity or the Citizens Advice Bureau (CAB) for professional advice on your situation.
Being in debt is not a situation that will resolve itself if you ignore it, and sticking your head in the sand is the worst course of action. Start communicating and explaining to your lenders what your situation is and they are more likely to offer a workable solution.