Charging Orders - discussion

[eggboxy1]

It's based upon anecdotal evidence, I work very closely with many of the national debt advice charities, the government and the Insolvency Service. We're seeing an upward trend. Well, at least we *have* been.

 

I understand your concerns, but it plays into the creditors hands to put forward the belief that we would definitely see Bankruptcy more often if the facts don't actually point that out. I also, now, work part time for a debt charity and in the last six months I have seen a dramatic fall off in creditors going for CO's and I've encountered no one having to deal with Bankruptcy for consumer debt. But I would not use my personal experience as a basis of it being the norm unless I could see it verified across the board.

 

However, the Insolvency Service stats HERE do show that bankruptcy rates were falling up to the second quarter of 2012. Are you saying that's dramatically changing? Because one of the factors for the decline is the amount of DRO's being sought. But I do agree bankruptcy is way more expensive and the "bean counters"working for the creditors will take this into account when deciding whether to sell off the debt or pursue it through legal channels. I just disagree that bankruptcy will suddenly rise with a high CO threshold.

[sequenci]

I understand your concerns, but it plays into the creditors hands to put forward the belief that we would definitely see Bankruptcy more often if the facts don't actually point that out.

 

We've seen trends with certain DCAs (and mainstream creditors). Take Lowell, for example. They've massively increased their use of stat demands AND bankruptcy petitions, thus every time one is sent it must be assumed (so long as the debtor is in mortgaged accommodation) that they mean business. Obviously it's not a systematic, blanket trend - but it is interesting to see the processes that are being used by these organisations. Should stricter rules be put in place regarding the obtaining of charging orders creditors are going to look at alternative options. Bailiff powers for CCA-regulated debts are pretty weak, so the only real alternative might be Attachment of Earnings Orders.

 

I've said it before, and I'll say it again, I don't actually mind CO's - so long as they are used properly, if someone is asset rich and cash poor it's the obvious enforcement tool to use. For those in family homes the TLATA rules are going to prevent an order for sale - and for nearly everyone else it's very easy to ensure that no further execution/enforcement takes place by asking the court to add conditions to the charge. Now that the 1st October '12 changes have made it easier for CO's to be granted we can assume to see many more CO's being made final.

 

The key reason why debtors' petions for bankruptcies have reduced are DROs (as you mentioned) and the significant increase in fees which have priced most people out of bankruptcy, sadly.

 

 

 

 

I also, now, work part time for a debt charity and in the last six months I have seen a dramatic fall off in creditors going for CO's and I've encountered no one having to deal with Bankruptcy for consumer debt. But I would not use my personal experience as a basis of it being the norm unless I could see it verified across the board.

 

However, the Insolvency Service stats HERE do show that bankruptcy rates were falling up to the second quarter of 2012. Are you saying that's dramatically changing? Because one of the factors for the decline is the amount of DRO's being sought. But I do agree bankruptcy is way more expensive and the "bean counters"working for the creditors will take this into account when deciding whether to sell off the debt or pursue it through legal channels. I just disagree that bankruptcy will suddenly rise with a high CO threshold.

[eggboxy1]

We've seen trends with certain DCAs (and mainstream creditors). Take Lowell, for example. They've massively increased their use of stat demands AND bankruptcy petitions, thus every time one is sent it must be assumed (so long as the debtor is in mortgaged accommodation) that they mean business. ]

 

I understand what you say above, but you can't let the whole picture be skewed by one creditors actions. Of the people I deal with, MBNA are by far the worst of creditors I am notified of who are trying to obtain a CO and the percentage of women they target is massively higher than that of men. But, again, I couldn't assume this is the norm across the board without the data to back that up.

 

And whilst TLATA and other case law protects family and main residential homes from an OFS, it doesn't protect people from have "security" gained over their property for an "unsecured" loan which, as I point out above, even the Government accept is unfair.

[sequenci]

I understand what you say above, but you can't let the whole picture be skewed by one creditors actions.

 

I'm not. That was just one example

 

And whilst TLATA and other case law protects family and main residential homes from an OFS, it doesn't protect people from have "security" gained over their property for an "unsecured" loan which, as I point out above, even the Government accept is unfair.

 

I guess we'll have to agree to disagree. I think it's important to consider the debt as a debt. It's no longer a 'loan' per se as a charge can only occur once the loan has defaulted and terminated and has become a judgment debt. I do think that an individual should be made more aware of the potential pitfalls of failing to pay a credit agreement, I know there is some information buried within a contract, but it should be made clearer for sure.

 

Put it this way, what do you honestly think will happen if CO's were made more difficult to obtain by lenders, what would they do instead?

 

By the way, I'm grateful for the discussion, I find it really interesting - and it's views from interesting parties, such as your goodself, that can really help in the work that I'm often involved with.

[Guest]

that seems to be a crux argument, ie judgment debt. but to be fair all other reasonable means of payment should be exhausted prior and re enforcement (apart from bankruptcy, which should be an absolute last resort). the new regs make it easier to obtain a co. and despite a co an instalment order can still be put in place. as mentioned before, one issue then, despite the 'protection', is re any subsequent app'n for sale partic re a 'small' amount, give a dog a bone! hopefully, they won't be so ready to apply for sale orders, and perhaps there could more guidance on that etc re reassurance for eg.

Edited January 17, 2013 by Ford

[eggboxy1]

Put it this way, what do you honestly think will happen if CO's were made more difficult to obtain by lenders, what would they do instead?

 

Much the same as what they already do to those debts they don't currently pursue to the Charging Order stage. To understand why, in my opinion, that would be the case you need to ask yourself why more CCJ's (and subsequent CO's) aren't already sought by creditors than are at present? The answer is simply time, business economics and (possibly) reputation .

 

Gaston explained in post #120 how easy it is for a creditor to gain a bankruptcy order with the sale of the property being a "slam dunk" (as he so eloquently puts it) but it only addressed the ABC of how a bankruptcy order works. What it failed to factor in is why, given the ease and apparent zero cost option, there hasn't already been an explosion of bankruptcy's already? That CO's are available isn't the answer because why would creditors currently pursue a CO (and then have to wait God knows how long for the return of its money) when a simple bankruptcy order would do the trick in a flash? It's because there are other factors that have to be taken in to account for a business and bankruptcy, despite Gaston's Utopian view, is financially risky and costly to pursue.

 

A creditor will consider the interest already earned/ the write off and tax deductible bad debt allowance plus a sell off amount to a DCA before he he even decides to go after a CCJ let alone a CO, so bankruptcy will be way down the agenda. Suing somebody takes time, effort and money and if the previous considerations look agreeable then a business won't spend time and money chasing a debtor if it only stands to gain an unknown quantity from doing so. This is why Debt Collection is outsourced simply because its more efficient and cost effective for the banks to do so.

 

This doesn't mean that there will be NO bankruptcy dealings by creditors it just means, IMHO, that the factors that have governed a creditor deciding to pursue bankruptcy would remain the same and the stats will, therefore, still remain the same. A CO has largely been a shot to nothing for the creditor as the courts give them away so freely; the removal of such wouldn't alter the bankruptcy factors just the ability for creditors to gain a CO and the one isn't connected to the other (although its easy to think that and expect creditors to say they are that to keep the easily gained CO's in place!)

 

Reputation has to, also, be considered. From the people I deal with not one of them knew what a CO was before they fell into debt and were threatened with one. To me they are the credit industry's dirty little secret and I should imagine they would want to keep it that way. But ask these same people if they know what bankruptcy is and you will get a totally different response. If bankruptcy, therefore, started happening en masse and people started to understand that they could be made bankrupt and lose their home if they couldn't pay their credit card bill; then it would begin to send shock waves that the Government simply wouldn't be able to ignore.

 

(And yes, it is good to exchange differing views!)

[Gaston Grimsdyke]

Gaston explained in post #120 how easy it is for a creditor to gain a bankruptcy order with the sale of the property being a "slam dunk" (as he so eloquently puts it) but it only addressed the ABC of how a bankruptcy order works. What it failed to factor in is why, given the ease and apparent zero cost option, there hasn't already been an explosion of bankruptcy's already? That CO's are available isn't the answer because why would creditors currently pursue a CO (and then have to wait God knows how long for the return of its money) when a simple bankruptcy order would do the trick in a flash? It's because there are other factors that have to be taken in to account for a business and bankruptcy, despite Gaston's Utopian view, is financially risky and costly to pursue.

 

You've completely missed the point. Currently charging orders are preferable for many creditors because a) they're cheaper than bankruptcies b) they confer priority on that creditor and c) there is queasiness amongst some creditors to take the nuclear option. Tell a creditor that they cannot get a charging order for a debt of less than, say, 10K and all of a sudden bankrupcty for those with equity in their properties becomes much more attractive. They'll easily be able to find a solicitor prepared to fund the disbursements because the costs will be the first thing paid out of the bankruptcy - this is a model which has been in existence for some years. And statistically speaking, something like 60% will never get to bankruptcy order stage because the debtor will pay up rather than be made bankrupt, so there will be no shortage of solicitors and insolvency practitioners willing to risk share.

 

And as for your distaste for charging orders on unsecured lending, what do you think would happen if they were prohibited? Answer: unsecured lending would be harder to get and more expensive. The availability and pricing of unsecured lending is a factor of the access to charging orders in default cases.

[eggboxy1]

There's no point missed I just don't share the opinion, for the reasons I have given above, that bankruptcy will be the preferred option for creditors with a higher threshold on Charging Orders.

 

Tell a creditor that they cannot get a charging order for a debt of less than, say, 10K and all of a sudden bankrupcty for those with equity in their properties becomes much more attractive.

 

Your a), b) & c) reasons as to why creditors go after CO's are reasons why creditors go after CO's; but you're assuming (wrongly in my opinion) that they are also why creditors presently go for CO's in preference to bankruptcy proceedings. When a creditor is denied the CO option he is also denied the economy of a), the benefit of b) and then has to confront c) - those are the reasons, I would suggest, that the overwhelming majority of creditors steer clear of bankruptcy proceedings altogether whether there is a CO option on the table or not. It's an easy thing to believe that if you take away CO's then bankruptcy will be a preferred choice, but that thinking totally ignores the way creditors need to behave as businesses. When debts as large as £20,000 are being handed straight over to DCA companies to deal with (not even getting to the CCJ stage) then it has to be understood that those decisions are being taken for economic and business reasons that are for the benefit the creditor not the debtor. If the majority of debt progressed to a CCJ stage then I would have a different view, but as they don't and even CO's are fairly arbitrary, then I just don't see the logic that bankruptcy will be sought more often (given these facts) if a CO is not available.

 

And as for your distaste for charging orders on unsecured lending, what do you think would happen if they were prohibited? Answer: unsecured lending would be harder to get and more expensive. The availability and pricing of unsecured lending is a factor of the access to charging orders in default cases.

 

That doesn't really make sense as you don't have to be a householder to gain unsecured lending. However, an example of why I have such distaste for CO's on unsecured lending can be found on Barclay's website. In answer to their own question "What is an unsecured loan?" there explanation is as follows;

"Unsecured loans enable you to borrow money without offering up security based on a major asset, like your home for example"

[ken100464]

Seeing as Andrew Jenkins is becoming all pious at Barclays wouldnt a letter pointing out that statement is just the sort of statement that gets his bank a bad name.

[Gaston Grimsdyke]

There's no point missed I just don't share the opinion, for the reasons I have given above, that bankruptcy will be the preferred option for creditors with a higher threshold on Charging Orders.

 

 

 

Your a), b) & c) reasons as to why creditors go after CO's are reasons why creditors go after CO's; but you're assuming (wrongly in my opinion) that they are also why creditors presently go for CO's in preference to bankruptcy proceedings. When a creditor is denied the CO option he is also denied the economy of a), the benefit of b) and then has to confront c) - those are the reasons, I would suggest, that the overwhelming majority of creditors steer clear of bankruptcy proceedings altogether whether there is a CO option on the table or not. It's an easy thing to believe that if you take away CO's then bankruptcy will be a preferred choice, but that thinking totally ignores the way creditors need to behave as businesses. When debts as large as £20,000 are being handed straight over to DCA companies to deal with (not even getting to the CCJ stage) then it has to be understood that those decisions are being taken for economic and business reasons that are for the benefit the creditor not the debtor. If the majority of debt progressed to a CCJ stage then I would have a different view, but as they don't and even CO's are fairly arbitrary, then I just don't see the logic that bankruptcy will be sought more often (given these facts) if a CO is not available.

 

 

 

That doesn't really make sense as you don't have to be a householder to gain unsecured lending. However, an example of why I have such distaste for CO's on unsecured lending can be found on Barclay's website. In answer to their own question "What is an unsecured loan?" there explanation is as follows;

"Unsecured loans enable you to borrow money without offering up security based on a major asset, like your home for example"

 

FWIW, the MOJ agrees with me. In its impact assessment on the proposal to put a lower limit on OFS proceedings it recommended a low limit (1K) because of the likelihood of creditors switching from charging orders to bankruptcy as a means to accessing equity in debtors' properties.

[eggboxy1]

Yes they do (but then they also agree with me that CO's are unfair) but it's an assumption not based on what the creditors were protesting about. The lenders never threatened to start pursuing bankruptcy, they just threatened to rethink their "lending policies". They threatened that if CO's were removed that they would,

 

"...either move towards lending on a secured basis only; or they would substantially raise interest rates on unsecured lending to make provision for the increased number of 'bad debts' that they would be unable to effectively pursue".

 

Now given you have let us know just how easy a creditor can gain bankruptcy; why would they feel they couldn't pursue debts without a CO? And don't forget they can't pursue CO's on the huge amount of customers they have who aren't householders. Perhaps its because that is an option the vast majority of creditors just wouldn't pursue on unsecured lending? The MOJ also stated regarding CO's that,

 

"A decision to lend to an individual borrower should be based on an assessment of that borrower’s creditworthiness and ability to repay, rather than the possibility of securing the loan by means of a charging order if the debtor defaults. Furthermore, most lenders charge a premium on unsecured lending as compared to secured loans, reflecting the increased risk (arising from the absence of security)."

 

So it's clear they don't like CO's and, as they state in the paper, they think they are unfair. But despite this thinking, they still bottled the OFT's recommendation of a much higher limit and caved, I believe, because they fell for the same assumption (fear) Sequenci is concerned about. But it's not an assumption based on the facts of what, either, creditors currently do to chase the majority of their debtors or what they threatened to do if CO's were removed.

[Guest]

.......one issue then, despite the 'protection', is re any subsequent app'n for sale partic re a 'small' amount, give a dog a bone! hopefully, they won't be so ready to apply for sale orders, and perhaps there could more guidance on that etc re reassurance for eg.

 

thanks to eggboxy highlighting some caselaw guidance #523 http://www.consumeractiongroup.co.uk/forum/showthread.php?203298-A-guide-to-Charging-Orders-amp-Orders-for-Sale/page27

[The Mould]

OFT imposes requirements on RBS and NatWest about use ofcharging orders

http://www.oft.gov.uk/news-and-updates/press/2013/03-13

Kind regards

The Mould

[Guest]

as posted by eggboxy1 in co sticky

 

'The Land Registry have just produced a new Practice Guide 76 regarding Charging Orders HERE

 

Of particular interest is Section 5 which at paragraph 3 reads,

 

"Entry of a restriction does not protect the priority of the interest to which it relates for the purpose of s.29, LRA 2002. A charging order affecting only the beneficial interests under a trust is liable to be overreached along with those interests by the operation of ss.2 and 27, Law of Property Act 1925. Accordingly, a Form K restriction will be usually be cancelled automatically, without application, when a transfer which appears to overreach the beneficial interests is registered."

 

Which information will, hopefully, a) be of use to sellers when conveyancers are telling them that the CO related to the Restriction has to be paid off prior to any sale being completed and b) eventually deter creditors from going down the CO route (if it can only be made against Beneficial Interest) as it will come to be seen as an ineffective debt collection method with poor security.'

[sequenci]

Overreaching is easily achieved too. The simplest way is to sell the property to two owners (e.g. a couple).

[steampowered]

This is a rather exceptional case, the idea is that if you have a charge against a beneficial interest and the beneficial interest is overreached, the charge will get overreached too. But that would only apply where property is held by one person (the legal/registered owner, or trustee) for another person who is not on the register (beneficial owner, or beneficiary of the trust). If the registered owner is the same person as the beneficial owner, as is normally the case, a registered charging order won't get overreached.

 

See section 29 LRA2002 which deals with overreaching -

"For the purposes of subsection (1), the priority of an interest is protected

(a)in any case, if the interest

(i)is a registered charge or the subject of a notice in the register"

[Ganymede]

as posted by eggboxy1 in co sticky

 

'The Land Registry have just produced a new Practice Guide 76 regarding Charging Orders HERE

 

Of particular interest is Section 5 which at paragraph 3 reads,

 

"Entry of a restriction does not protect the priority of the interest to which it relates for the purpose of s.29, LRA 2002. A charging order affecting only the beneficial interests under a trust is liable to be overreached along with those interests by the operation of ss.2 and 27, Law of Property Act 1925. Accordingly, a Form K restriction will be usually be cancelled automatically, without application, when a transfer which appears to overreach the beneficial interests is registered."

 

Which information will, hopefully, a) be of use to sellers when conveyancers are telling them that the CO related to the Restriction has to be paid off prior to any sale being completed and b) eventually deter creditors from going down the CO route (if it can only be made against Beneficial Interest) as it will come to be seen as an ineffective debt collection method with poor security.'

 

 

 

 

A Restriction can still be used to apply for an Order for Sale so I don't think we've seen the end of them just yet.

[sequenci]

A Restriction can still be used to apply for an Order for Sale so I don't think we've seen the end of them just yet.

 

Would the court be more unwilling to allow an order for sale in relation to an equitable 'charge' or would the same rules apply?

[Ganymede]

No difference in terms of OFS between a Restriction or Equitable Charge.

 

A Court would probably be more open to an OFS based on an Equitable Charge.

[sequenci]

That's interesting. Thanks.

[eggboxy1]

A Restriction can still be used to apply for an Order for Sale so I don't think we've seen the end of them just yet.

 

Whilst I certainly agree we won't see the the end of them for a while; I do think the writings on the wall for their future effectiveness as the facts regarding the powers of a Form K Restriction (or lack of them) become more widely known. Articles like THIS in the Daily Mail are beginning to slowly appear pointing out the limitations to the creditor with a Form K Restriction. And whilst I understand a Restriction still has the power to allow the creditor to go for an OFS, it's a fairly futile option given the MOJ have pointed out (in their last CO assessment paper) that there is now case law preventing this happening on family and primary residencies.

 

Even without that last fact we know from court statistics that creditors are not going for this option due to the very unlikely chance they are granted by a judge anyway (certainly on consumer debt.) We also know from posters experiences that the creditors have had it extremely easy getting paid from obtaining a Restriction due, it would appear, from a combination of ignorance, incompetence and fear on the part of conveyancers insisting the CO notified by the Restriction HAS to be paid off before a sale can commence. Given this latest Practice Guide now gives the option for sellers to explain to conveyancers that this is not the case, a wider knowledge of this information has to, I feel, see some change in the future on what is currently happening.

[eggboxy1]

Overreaching is easily achieved too. The simplest way is to sell the property to two owners (e.g. a couple).

 

Just to correct this slightly, I asked a Land Registry Representative about this and this is their reply;

"a sale is a sale whether it is to one, two, three or even four. The two or more and/or sole issue is relevant with regards who is selling and not who is buying.

 

For example a Transfer for money by two or more registered proprietors to a third party (sole or joint) will overreach "

[sequenci]

That completely contractdicts what I was taught in my law degre, oh and in the regulations.

 

See this: http://www.legislation.gov.uk/ukpga/Geo5/15-16/20/section/27

 

And read Williams & Glyns bank Ltd v Boland and/or City of London Building Society v Flegg

 

Your representative hasn't got it right as far as the academic position is, at least.

[eggboxy1]

Response;

 

The legislation link you give states;

 

"Purchaser not to be concerned with the trusts of the proceeds of sale which are to be paid to two or more trustees or to a trust corporation"

 

Purchaser is singular and the purchase monies have to be paid to two or more. The key aspects are that there are a) purchase monies and b) there are more than two people selling and therefore in receipt of those monies

 

As far as I am aware how many people provide those monies does not come into play here. I will have a look at the case law quoted but if there is a section as to which you are referring it would help to point that out first

[sequenci]

Which is what I said originally, is it not?

 

Overreaching is easily achieved too. The simplest way is to sell the property to two owners (e.g. a couple).