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Bankruptcy

Charging Orders

What is it?

A creditor may apply to the Court for a Charging Order over your property to enforce the County Court Judgement that it has obtained against you, if you have not paid the debt.
It becomes a secured creditor just like the mortgage on your house, but it will stand behind in priority and previously obtained mortgages.

How can a creditor apply for a Charging Order?

Firstly the creditor must have obtained a County Court Judgement against you. That judgement will have either demanded that payment be paid in full immediately or by some future date (a "forthwith" order) or ordered that payment of the debt be made in instalments.
If you have not paid the debt by that certain date, or have missed one or more instalments, then the creditor may apply for a Charging Order.

Can a creditor obtain a Charging Order without my knowing?

The creditor will have ascertained that you own or have a part interest in a property, usually be conducting a search at the Land Registry. You may well have told the creditor on your initial loan or credit application form.
An application will be made to Court for a Charging Order and the Court will make an "Interim Charging Order" and this is made automatically once the Court is satisfied that the creditor has obtained a County Court Judgement which you have defaulted on and that you have an interest in the property.
A date for the full hearing will now be sent to you with a copy of the Interim Charging Order and you will have a minimum of 21 days notice of the hearing which will be in front of a District Judge.
The creditor will also file the Interim Order with the Land Registry (who will notify you that this has happened). This "caution" prevents you selling the property before the hearing.
If you wish to object to a "Final Charging Order" being made, you should attend the Court and state your reasons. In your absence a "Final Charging Order" will be made.

Objecting to the Final Charging Order.

The District judge will take into account your personal circumstances and whether, in granting the order, that it will unfairly prejudice the other creditors.

In looking at your circumstances, accounts will be taken of any serious illness or disability of a family member living at the house.

The Court may order that the Interim Order be sent to other creditors so that they have the opportunity to object. In considering whether the order will unfairly prejudice other creditors, the Court ill consider:-

The size of the debt on comparison with other creditors.
The fact that other creditors may have frozen interest charges.
The existence of repayment plans with other creditors.
Could the creditor have given a secured loan at first instance, but then decided to give you an unsecured loan.
Whether there is negative equity and therefore the Charging Order serves no purpose.

Staying the hearing and dealing with all unsecured creditors.

If you have a number of unsecured creditors, then you should consider applying for an Individual Voluntary Arrangement, "IVA".

The Insolvency Practitioner, as part of the IVA process, will apply for an Interim Order which freezes the position, preventing the continuance of any legal process without leave of the Court. This is to allow time for a creditors meeting to take place where they can decide whether or not to approve the proposed IVA. The judgement creditor may apply for leave of the Court to continue with the Charging Order application, but the Judge is unlikely to grant such leave as it would be seen to be unfair to other creditors.

Having obtained a Final Charging Order, does this mean the creditor can force the sale of my home?

It is usual for creditors to wait until you sell your home at some time in the future and to be paid from proceeds. If the creditor is not prepared to wait, then they may apply for an order for sale.

The Court will take into account:

The interest of any joint owners.
The circumstances of any occupier; for example elderly or seriously ill relatives.
The welfare and schooling of any children.
Whether there is sufficient income to discharge the mortgages as well as the Charging Order debt.
Whether you can make regular payments to the creditor.

Whilst it is unusual for an order for sale to be made, interest will be added from the date of the Charging Order. Interest cannot be charged if the agreement is regulated by the Consumer Credit Acts (which applies to most ordinary credit agreements, including bank overdrafts) or the debt is less than £5,000 in total.