WHAT IS A CHARGING ORDER?- If a creditor has a county court judgment against you ordering you to repay a debt, they may be able to apply to the court for a charging order to enforce the judgment if you do not pay.
- A charging order gives the creditor security for the debt; in other words, the debt would become 'secured' like a mortgage on your house, or land.
- There must be a hearing in the county court before a charging order can be made and there are several arguments you can use to try to stop an order being made.
- This fact sheet explains the court procedure in the county court and what you can do. Some creditors can apply for a charging order after taking you to the High Court. If you think this may have happened, or if you are not sure what to do, phone us for advice.
WHEN CAN A CREDITOR APPLY FOR A CHARGING ORDER?
The creditor can apply for a charging order if they have a county court judgment against you and:
- you have been ordered to pay the whole debt immediately or by a certain date, (this is known as a 'forthwith' judgment) and have not done so; or
- the court has ordered you to pay the judgment by instalments and you have missed one or more payments.
INFORMATION
If you have been ordered to pay the debt in instalments and are not behind on the payments the court should not make a charging order. This is because of a very important case called Mercantile Credit Co Ltd v Ellis in 1987.
HOW IS AN APPLICATION MADE?
The application for a charging order always has two stages.
Stage one - the interim orderThe creditor makes an application for a charging order and the court will make what is called an interim charging order if it is satisfied that you own, or have a part share (an interest), in the property in question.
This is not the final order. An interim charging order is usually made automatically without a hearing and a date for a full hearing is set. A copy of the interim order will be sent to you. This should be done at least
21 days before the hearing date set by the district judge. The hearing is for the court to decide whether or not to make the charging order permanent
('Final'). This hearing is likely to be held in the district judge's private rooms.
The creditor will also register the interim charging order as a 'caution' on your property with the Land Registry who should inform you of this in writing. This means you cannot sell the property before the hearing.
Stage two - the final charging orderThe second stage is the court hearing in front of the district judge. At this hearing the court will decide whether to make a permanent charge on the property. This is called a final charging order. If you object to a charging order being made final then you should send the creditor and the court written evidence stating why you object. You should do this at least seven days before the hearing. This could be in the form of a letter of objection outlining all the arguments you have for why the charging order should not be made. This should be sent by registered post to both the creditor and the court.
If you do this then your arguments should be taken into account by the district judge at the hearing. You should still go to the hearing and if you do not send any written evidence then it is vital that you go.
WARNING
The court can refuse to make the charging order so you must serve a notice and go to the hearing. If you cannot attend on that date, contact the court for a different hearing date to be arranged. If you do not go the charging order is likely to be made final by the court at the request of the creditor.
ADVICE
If the hearing has been arranged in another court, ask for it to be transferred to your local court. You can apply on an application form called an
N244 explaining why you can't go to the hearing, e.g. due to the distance, travel or childcare costs.
HOW CAN I STOP A CHARGING ORDER?
The court must consider whether it is reasonable to make a charging order. Under the
Charging Orders Act 1979 the court has to consider all the circumstances of the case and in particular:
- the personal circumstances of 'the debtor';
- whether any creditor would be 'unduly prejudiced'. This means the court has to decide if making a charging order would disadvantage other creditors.
The arguments you can use against the order being made will vary depending on your circumstances, whether you have any other debts, whether you have equity in your house and own your home in joint names or on your own.
These are some of the factors that the court may consider.- Does any member of your family have a disability or serious illness?
- If you have a number of debts and making a charging order in favour of one creditor would give them unfair priority over the other unsecured creditors. It is particularly useful if you can show you already have a payment arrangement in place with your other creditors. This would be upset by an order being made. Point out if any of the debts are larger than this debt and if any other creditors have frozen the interest.
- Your creditor is supposed to list all the other creditors that they are aware of in the application for an interim charging order.
- The court can order the interim order to be sent to the other known creditors but does not have to do this. This means that creditors who may want to object to the final charging order being made will not know about the hearing. You can raise this in your written objections and at the hearing if you think a creditor may be 'unduly prejudiced' by the charging order being made.
- Could the creditor have given you a secured loan when you first took out the loan? If they decided to offer an unsecured loan instead, this could be particularly relevant if you have other unsecured creditors who may be disadvantaged by a charging order being made.
- There are other ways the court could enforce payment of the debt. You could ask the court to make an instalment order so you make monthly payments you can afford, or 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.
- If your debt is covered by the Consumer Credit Act you can apply for a time order. Ask the court to look at this application before the charging order. A time order can change the monthly payments and extend the length of time you pay the debt for.
- 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 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.
- If your home is worth less than your mortgage (also known as negative equity), then you can argue it is not worth a charging order being made, as the creditor would not be paid off, even if they forced your home to be sold.
- If the debt is very small in comparison to the amount of equity in your home, argue that a charging order would be unfair.
You should point out any particular hardship that your family would suffer if a charging order was to lead to the sale of your home. This is particularly important if the debt is in your name but you own your home jointly so it is not even your partner's debt.
If none of these arguments are successful and the court makes a final charging order, you can still ask the court not to let your house be sold as long as you pay monthly instalments. Make an offer to pay in monthly instalments at the hearing. If the court will not look at your offer at the hearing, you can still apply to pay in instalments by using an application form called an
N245.
THE HOUSE IS IN JOINT NAMES BUT THE DEBT IS IN MY NAME
If the debt is in your sole name, but you own the house in joint names with someone else, they have the right to tell the court all the circumstances and why they would suffer hardship if a charging order is made. They should have been sent a copy of the interim charging order and given an opportunity to go to the hearing and put their point. For example:
- who paid the deposit to buy the home?
- who has made the mortgage payments since?
- if there are children at home, ask the court to put a condition that the house cannot be sold by the creditor until the children have grown up;
- the co-owner will need to file and serve written evidence of their objections at least 7 days before the hearing.
If a charging order is made by the court then it will only apply to your share of the property.
I ALREADY HAVE AN INSTALMENT ORDER AND AM NOT BEHIND WITH IT
If you have kept up with instalments on a county court judgment then the court should not make a final charging order. According to a case called Mercantile Credit Co Ltd v Ellis in 1987, a charging order should only be made if the payments on a judgment are in arrears or you were ordered to pay the judgment in one lump sum immediately (forthwith) and didn't pay. This case is very important. If you are in this situation and still have an interim charging order made, you must go to the hearing and take evidence that you have kept up with the instalments ordered and mention this case to the district judge.
We have heard of cases where a creditor asks the court to change or 'vary' the terms of your judgment from an instalment order to a forthwith judgment. If the court agrees, it makes it easier for the creditor to apply for a charging order.
DIVORCE AND SEPARATION
If you are currently involved in divorce proceedings, or a dispute over dividing up the former matrimonial home, then you must get detailed legal advice from a solicitor. You may be able to stop a charging order being made, depending upon the stage in the divorce proceedings.
INTEREST
If the creditor has taken the debt to the county court, they may be able to add extra interest once a charging order is made. Interest cannot be added if:
- the debt is for an agreement regulated by the Consumer Credit Act. This includes most ordinary credit agreements, including bank overdrafts; or
- the debt is less than £5,000 in total, even if it is not covered by the Consumer Credit Act.
If the debt is more than £5,000 and not covered by the Consumer Credit Act, then interest is set by the court and runs at a standard rate.
WHAT DOES A CHARGING ORDER AFFECT?
A charging order may be made against any item in which you have 'an interest'. This usually means property that you own (or part own) and will usually be your home. If you own your home in your sole name, then the house will be covered by the final charging order. If you own your home in joint names with someone else then the charging order will cover your share or 'beneficial interest' in the property.
CAN THE CREDITOR SELL MY HOME?
It is rare for the court to allow a creditor who has a final charging order to sell your home. Most creditors are prepared to wait for you to sell your home at some point in the future and to be paid out of the proceeds of the sale. If a creditor is not prepared to wait, then they can apply to the court for a hearing for an order for sale. It is up to the court to decide whether to make an order for sale or not.
The court should take into account the factors outlined above in the section '
Charge on your home... 
