Charging orders

A charging order secures a debt subject to a judgment against the debtor’s property. When the property is sold, the charge is paid off from the proceeds of the sale after the first mortgage and previous charges are paid.
What is a charging order?
money house

A charging order turns an unsecured debt into secured debt and can only be applied for if the debt is subject to a judgment (a CCJ or other court order) and is over the limit (currently £1,000). The order can be made against your home or any other land or property you own.

  • If you own your home in your sole name, then the charging order will be made against the whole property. This is sometimes called a ‘notice’.

  • If the properly is jointly owned and the debt is in your sole name, the order will be made against your beneficial interest in the property, often called a ‘restriction’.  When the property is sold, the debt should only be paid out of your share of the equity.

  • For judgments made before October 1st 2012, the creditor can only apply for a charging order if you have defaulted on your monthly installments agreed with the court.

  • If the judgment was made on or after October 1st 2012, a charging order can be made even if you have not defaulted on your installments, however, the court must take into account the fact that you have not defaulted.

  • The process for applying for and recording charging orders is set out in Part 73 of the CPR and supplemented by Practice Direction 73.

The process

charging orderThe creditor starts by applying to the court for an interim charging order. This application is made without notice and is intended to stop you from disposing of the property while the final charging order is made. The application will include details of the following:

  • The judgment amount
  • The outstanding balance under the judgment
  • Any arrears of repayments
  • Your interest in the property

The court will then send you  a copy of the application form N379 and the interim charging order along with details of the final charging order hearing. They should give you at least 21 days notice before the hearing.

The creditor applies to the Land Registry to register a restriction on the property and they will also forward you a copy of the registration. This is intended to stop you from attempting to sell the property before the final order is made.

For a number of people, the first they hear about a default judgment obtained against them is when the Land Registry informs them of the interim charging order. If you did not receive the claim form, you may be able to apply to have the judgment set aside. See set aside for more information.

An interim charging order can only be made final at a hearing, where the judge will decide whether to make the order final or discharge it altogether. In practice, most applications for charging orders for judgments made after October 1st 2012 succeed, however, you should still attend the hearing and put forward your objections.

It is possible to attach conditions to the order, such as the creditor not applying for an order for sale as long as repayments are being maintained or as long as there are other family members living in the property.
Jointly owned property

house on coinsIf the debt is in your sole name but the property is owned jointly, the order can only be made against your share in the property, known as your ‘beneficial interest’. This gives you additional protection against the possibility of a creditor applying for an order for sale and can also be used as an argument against the charging order being made final at the hearing. If the property is subject to divorce proceedings, and adjournment should be requested while the matter is dealt with by the divorce court.

If the property is in your sole name, but someone else has made significant contributions either to the purchase price (such as deposit or mortgage repayments) or to the ongoing maintenance and bills, they may have obtained a beneficial interest in the property. They could have got a legal right to a share of the equity, even if they are not named on the deeds and/or the mortgage. If this can be proven, the extra protection given to jointly owned property will apply.
A charging order on jointly owned property severs any joint tenancy. In effect, if either of the owners dies, their share doesn’t automatically pass to the other owner but is dealt with as part of their estate.
Objecting to the final order

In the balanceAny objections to the order being made final should be made in writing and sent to both the court and the creditor at least seven days before the hearing date. Attach any relevant documents such as details of other creditors, both secured and unsecured, as well as your financial statements and anything relating to you or your family’s circumstances.

Some arguments that can be put forward include:

  • Other creditors would be ‘unduly prejudiced’, i.e. placed at a disadvantage.
  • You are up to date with your installments and have never defaulted on your payments.
  • You can offer to pay by an alternative method such as an attachment of earnings order, provided that you are employed and such an order wouldn’t affect your job.
  • The property was bought as a family home and it’s not fair on the whole family to put their home at risk for a debt incurred only by yourself.
  • If your total debts are less than £5,000, you could ask for an administration order to be considered.
  • If the property is in negative equity, you could argue there is no point in making a charging order because no money would be released from the sale to repay the debt.
  • If the property is jointly owned and your share in the equity is less than the debt, you could argue there is no point in making a charging order because the debt would not be paid from the sale of the property.
  • If the debt is very small in relation to the equity in your home, you could argue that it’s unfair to make a charging order for such a small amount.
In practice, it can be difficult to convince a judge not to make a charging order final
Even if the court agrees to the order being made final, you can still have conditions attached to it.
If you are able to challenge the underlying judgment or court order (such as getting the judgment set aside), you can get the order discharged. You should notify the court if you are in the process of making such a challenge.
Conditions attached to the order

It is possible to apply for conditions to be attached to the final order, this can be done at the hearing, so it’s worth attending even if the order is still made final. You can point out to the court that, when making a charging order final, it should consider the possibility of enforcement via an order for sale.

If you intend to ask for conditions to be attached to the order if it’s made final, you should submit a witness statement and a financial statement.
Even if a final order has already been made, it is still possible to apply to the court to vary the order if your circumstances were not taken into account at the time the order was made or your circumstances have changed.

Conditions that can be attached to the order are intended to stop the creditor from applying for an order for sale as long as you keep up your repayments or as long as there are children living in the property.

For judgments made on or after October 1st 2012, the creditor cannot apply for an order for sale unless you have defaulted on your repayments and the arrears remain unpaid on the day of the order for sale hearing.
Order for sale

Turn house into moneyAn order for sale is a court order to force you to sell your property to repay a debt secured on it via a charging order. Charging orders for debts that were originally unsecured do not give the creditor the right to start possession proceedings like secured debts do. Judgment creditors cannot repossess your home but, at least in principle, can apply to the court to force the sale of the property.

An order for sale can be regarded as draconian and disproportionate to the amount of the debt. The court is likely to take into account circumstances such as:

  • the size of the debt – the smaller it is, the less likely the order will be granted
  • the amount of equity in the property at the time of the application – if the debt isn’t likely to be paid, the court will see no point in agreeing to the application
  • your approach to the judgment and whether you have maintained repayments and/or applied to vary the installment order
  • whether this is your main residence – an investment property is more likely to be the subject of a forced sale
  • whether there are other family members living in the property
  • whether there is someone ill or disabled living in the home and whether it has been adapted
  • if the property is jointly owned, the court is less likely to grant the order because it would affect a third party
  • the disruption caused to children or elderly people being forced to move
  • if the creditor is a debt purchaser, the court may question how much they are really out of pocket if the debt is not paid

An order for sale application will always be decided at a hearing and it is vital that you attend the hearing. If you receive notification of an application for an order for sale, you should return the acknowledgment of service within 14 days along with a statement of your intention to oppose the application and your grounds for doing so.

If is important to distinguish a real application to the court for an order for sale from a letter from a judgment creditor threatening to make such an application. Threats of orders for sale are often used by creditors to make people pay their judgments.
If you are in arrears with your installment order, try to bring your installments up to date by paying the arrears before the hearing date. If your judgment was made on or after October 1st 2012, this should be enough to prevent the order being made.
The court has the power to suspend an order on certain terms (such as repayments) or postpone it until a certain date such as the youngest family member reaching majority.
If an order for sale is made and not suspended, you will usually be given 28 days to pay or move out, otherwise the creditor can apply for a warrant of possession.
If you an order for sale has been made, you should seek professional help immediately.
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If you can’t afford your CCJ repayments, you need to apply for a variation to avoid enforcement action. A charging order is an indirect method of enforcement and creditors can use another enforcement method.
See variations.
For judgments made on or after October 1st 2012, the creditor cannot apply for an order for sale unless you have defaulted on your repayments and the arrears remain unpaid on the day of the order for sale hearing.
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