Debt Solicitors

By Saima Siddiq

If you are a property owner and you have defaulted on your credit card or personal loan repayments, your credit card or loan company can secure this debt against your property.

What is a charging order?
A charging order is one of the more frightening enforcement methods available to creditors seeking to reclaim outstanding debt once a Judgment has been obtained.

A charging order is a court order that places a ‘charge’ on a debtor’s property, turning unpaid, unsecured Judgment debts, such as credit card and personal loans (although not exhaustive), into secured debts. This means that once any prior-ranking charges on the property have been settled, the debt must be paid back out of the available proceeds of sale when the debtor sells the property.

A creditor who has obtained a charging order can also apply to the court for an order requiring the property to be sold sooner, although this only happens in a minority of cases.

Why would a creditor apply for a charging order?
Financial companies can apply to a court for a charging order when a consumer has failed to keep up payments on their credit card or other form of unsecured debt.

The Office of Fair Trading (OFT) warns financial services of this form of enforcement action
The number of charging orders granted by UK courts has risen from 45,000 to 164,000 over the last five years. The investigation by the OFT found a numbers of problems relating to the use charging orders by major creditors. The OFT singled out four lenders ordered to make changes to the way they operate. The problems uncovered by the OFT’S investigation were specific to each business, but across the sector they included:

- A failure to consider the customer’s circumstances or proportionality before asking the court to put a charging order in place;
- Not building adequate checks in to the lender’s decision-making process;
- Applying substantial charges for referring cases to a debt collection agency; and
- In a minority of case, sending oppressive and/or misleading correspondence.

The OFT’s Director of Consumer Credit, Ray Watson, said:

“Our investigation uncovered instances of charging orders being used to secure debts of less than £600. Lenders are entitled to use charging orders but must do so proportionately. Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers”.

Before seeking a charging order, creditors will now need to demonstratively take account of the personal and financial circumstance of the customer, the amount that is owed and whether it can be obtained by less drastic measures.

‘Which?’ borrowing and debt expert Martyn Saville commented:

“The OFT’S findings are worrying and are a timely reminder that even unsecured debt can put your home at risk if you fail to keep up repayments. Anybody who receives a letter from their lender threatening a charging order should seek professional debt advice as soon as possible”.

If you are being harassed by your creditor, threatened with a charging order, or have received a County Court Judgment (CCJ) against you, contact Duncan Lewis’ experienced debt team for further advice.