If a creditor has taken you to court over failure to repay a debt, then this may result in them having a county court judgment (CCJ) or another form of a court order against you. This will mean that you are required by the order of the court to repay the money that you own. This will either be made through regular payments, or you may be required to repay the entire debt by a certain date.
If your creditor has a court order against you, then they can apply for another court order that will secure the debt against your home or any other property that you own. This is known as a ‘charging order’. If you own a share in a property, then the charging order will only apply to your share of the property.
Charging order protection
A charging order should be taken very seriously as you may lose your home if you don’t repay your debt. A creditor who has obtained a charging order against you can take this a step further and apply for the court to grant an ‘order of sale’, which will force you to sell your home.
If your creditor is seeking to take out a charging order or an order of possession for sale, then you should consult a solicitor or public access licensed barrister, either of whom should specialise in property law.
- A Charging Order is a court order that essentially gives a creditor security for their debt – that is, it makes an unsecured debt secured. Typically, the debt becomes secured against a debtor’s interest in his/her home.
- A creditor can only make an application to court for a Charging Order if they have already secured a judgment against the debtor.
- There are two stages in the process – an “Interim Charging Order” and a “Final Charging Order”. The entire process normally takes between 6-8 weeks.
- An Interim Charging Order will generally be granted to the creditor when they make the application to court for a Charging Order. An Interim Charging Order is the first stage in the process and is generally made automatically without a hearing. The ICO is essentially a temporary Charging Order – the Land Registry will be notified and a debtor will be unable to dispose of the property until the outcome of the hearing (see next point) is known.
- A hearing date will be set to consider whether or not the Interim Charging Order should be made permanent, that is, whether or not a Final Charging Order should be made.
- A copy of the Interim Charging Order will be sent to the client. The ICO will advise of the date of the hearing at which it will be determined whether or not the ICO should be made into a Final Charging Order.
When Can A Creditor Apply For A Charing Order?
A charging order can only be taken out against you if you have already received a county court judgment against you for the same debt. After the CCJ has been issued, then the creditor will need to apply to the court in order to obtain the charging order.
The rules surrounding when a creditor can apply for a charging order were changed in 2012. You will need to check the date that the creditor applied for the original CCJ when it was granted, and what conditions the CCJ sets out regarding repayments.
If your creditor got a CCJ taken out against you before 1st October 2012 then they can only apply for a charging order if you have missed the deadline for repaying the entire debt, or you are paying the debt back in instalments and you have missed a payment. In the instance that you have missed one or more payments, try and catch up on these before your hearing and you will avoid getting a charging order.
If your creditor got the CCJ on or after the 1st October 2012, then they are able to apply for their charging order straight away, even if you are currently up-to-date on all of your payments under the terms of the CCJ.
How Does A Creditor Obtain A Charging Order?
There are two stages in the application process that a creditor will need to go through to obtain a charging order. Firstly, they will need to get an ‘interim order’ and this will be followed by a ‘final order’.
The interim order is usually put in place to stop you from selling your property without your creditor knowing before the final order is granted.
If the court grants the final charging order and you sell your property, that means that you will have to pay your creditor back out of the proceeds of the sale.
A creditor obtaining a final charging order against you does not mean that you will have to sell your property. If your creditor wants you to sell your property, then they will need to obtain an order of possession for sale from the court.
You can try to stop the court from granting either the final charging order or an order of possession for sale by arguing your case in court. You could also seek to get the judge to add conditions to the final charging order which may make it harder for the creditor to force you to sell your property.
What Is An Interim Charging Order?
An interim charging order can be made by the court without the need for a hearing. There would only need to be a hearing with the judge if you are up to date with an instalment order that was set up prior to 1st October 2012 or the court officer believes there is a reason that there should be a judge involved in the hearings.
If the decision is made by an officer of the court, your creditor will need to send you the interim charing order within 21 days of it being made.
If the decision is made by a judge, they may or may not decide to make an interim charging order, or they may set a hearing date at your local county court so that a judge can consider whether to make the final charging order.
When applying for an interim charging order, the creditor will also register a charge on your property with the land registry which will prevent you from selling the property without them knowing about it.
This charge will be removed by the land registry if you can repay the debt in full at this stage.
The application will be referred to a judge if:
- you are up to date with an instalment order that was made before 1 October 2012; or
- the court officer thinks there is a reason why the application should be considered by a judge.
If the decision is made by a court officer, your creditor will have to send you a copy of the interim order within 21 days of the order being made.
If the decision is made by a judge, they can either:
- refuse to make an interim order charging order;
- make an interim charging order; or
- make an interim charging order and set a hearing date at your local county court hearing centre. At the hearing the judge will consider whether to make a final charging order. See Stage two – the final charging order.
The creditor will register the interim charging order as a ‘notice’ or ‘restriction’ on your property with the Land Registry, which should inform you of this in writing. This means that the creditor can stop you from selling the property until the court has decided whether to make a final charging order. If the creditor has not followed these steps, they may not be able to carry on with their charging order application. Contact us for advice.
What Is A Final Charging Order?
Once you have been served with an interim charging order, you will have 28 days in which to object to a final charging order. This objection must be made in writing to both the court and the creditor.
If you object to the order, there will be a hearing made at your local county court. A judge will make a decision about whether a final charging order will be granted.
If you don’t send an objection to the order, the judge will make the decision on the final charging order without the need for a hearing.
If you have a hearing, you should attend. If you cannot make it, inform the court and seek an alternative date. If you are absent from the hearing, then the court is more likely to decide to ke the order final.
The hearing is a chance to allow a judge to look at the evidence you provide showing why you don’t want a charging order to be made. They will listen to the arguments made by your creditor and make a decision after taking into account both sides.
How To Prevent A Charging Order Being Made?
In order to stop a charging order being made against you, you could employ several arguments. Examples of these include:
- You have not missed any instalments
- The property that you own has little or no equity
- The charging order is unfair on your other creditors
- The charging order is unfair towards people that you live with
- Other creditors that you owe money to are not seeking charging orders
The court must consider whether it is reasonable to make a final charging order. Under the Charging Orders Act 1979, the court has to consider all the circumstances of the case and in particular:
- the circumstances of the person owing the debt; and
- whether any creditor would be ‘unduly prejudiced’. This means the court has to decide if making a charging order would disadvantage other creditors.
- your creditor applied for the CCJ on or after 1 October 2012;
- the court ordered you to pay the debt in instalments; and
- you are up to date with the instalments;
the court must take this into account when considering whether to make the charging order final. This means that you can argue that it would be unfair for the court to allow the creditor to get a final charging order, if you have not defaulted on any instalments that the court set on the CCJ. However, under the law, the court does not have to accept this argument and can still choose to make the charging order final.
The other arguments you can use against the order being made final will vary, depending on:
- your own circumstances;
- whether you have any other debts;
- whether you have ‘equity’ in your house; and
- whether you own your home in joint names or on your own.
‘Equity’ means the profit you would have left if you sold your home and paid off your mortgage and secured loans.
Depending on the circumstances of your case, these are some of the factors that the court may consider.
- Does any member of your family have a disability or serious illness?
- How many debts do you have?
- Will making a charging order in favour of one creditor give them unfair priority over the other unsecured debts? It can be helpful if you can show that the creditor that has taken court action against you has acted in such a way that it would be unfair to your other creditors.
- Sometimes it can be helpful to point out if you already have payment arrangements in place with your other creditors, and that a final charging order would upset these. It can also be worth highlighting if any of your other debts are larger than this one, and if any other creditors have frozen the interest. In practice, the court will often not take these things into account.
- Your creditor is supposed to list all the other creditors that they are aware of in their application for an interim charging order. The judge can direct the interim order to be sent to the other known creditors, but they do not have to do this. If creditors who may want to object to the final charging order do not receive a copy of the interim order, they will not know about the hearing. If you think that a creditor may be ‘unduly prejudiced’ by the charging order being made final, you can raise this in your written objections and at the hearing.
- Could the creditor have given you a secured loan when you first took out the loan? If they decided to offer an unsecured loan at a higher rate of interest instead, point out that other unsecured creditors may be disadvantaged by a charging order being made. It may be unreasonable to allow the creditor to secure the debt where a large part of the amount owed is interest and the interest rate that has been charged is typical of an unsecured loan.
- If you are likely to be made bankrupt, you can argue that a charging order would give the creditor an unfair advantage over other unsecured creditors. Contact us for advice.
- There are other ways the court could enforce payment of the debt. You could ask the court to make an instalment order so that you make monthly payments you can afford; or you could ask for an attachment of earnings order so that the instalments would come directly from your wages. This is only useful if you are employed and your employment would not be at risk.
More ways of trying to stop a final charging order
- If you owe less than £5,000 in total to all your creditors, you can argue that the debt should be included in an administration order rather than the charging order being made final.
- If your home is jointly-owned and your share of the equity in the property is less than the amount of the debt, you can argue that there is no point in the charging order being made. This is because the creditor would not be paid off in full, even if they forced the sale of your home. This is a complicated area. Contact us for advice.
- If your home is worth less than your mortgage (also known as negative equity), you can argue that there is no point in a charging order being made. This is because the creditor would not be paid off, even if they forced the sale of your home.
- If the debt is very small compared to the amount of equity in your home, you may be able to argue that it is unfair to make a charging order. However, the court may not accept this argument.
- If your debt is small and you have been paying the CCJ as the court ordered, argue that it is unfair to make a charging order. This only applies to CCJs applied for by creditors on or after 1 October 2012.
In practice, it can be very difficult to persuade the court not to make the charging order final.
If the court decides not to make the charging order, you will still have to pay the debt. Keep up to date with any instalments the court has ordered you to pay. This will stop your creditor from using other kinds of enforcement.
What To Do If The Final Charging Order Is Made?
If the final charging order is granted, you may be able to apply for the order to be ‘set aside’, you could ask for conditions to be attached to the order, or seek to get the order changed.
Having the charging order set aside means that the debt will go back to the judgement stage and the creditor will need to reapply to the court before they can take further action. You will need to apply to the court to do this, however, by going through this process you may have enough time in which to repay your debt.
This can only be done if the court did not consider your circumstances fully.
You can seek to add conditions to the charging order. For example, you may ask that your property not be sold while your children are still at school, or the final order be suspended as long as you stick to a payment plan.
You could apply to get the charging order changed. This will be applicable if there are conditions attached to the order. You can apply to have these conditions changed. These may be associated with repayment agreements.