Charging Orders Are Security For Your Creditors

As a nation, we owe over £1.4 trillion. For some people, their share of that total is simply too much – and when borrowers worry about debt, so do lenders.

From unsecured debt...
Almost £230 billion of the UK's personal debt is unsecured: there's no property backing it up, so if borrowers don't make their payments, lenders have to go to the courts for help.

It's important to understand that courts aren't there to punish people; they're there to resolve disputes. If the court feels it's the best way of helping the borrower repay a debt at a rate they can afford, it can issue a County Court Judgment (CCJ), laying down a new payment plan which they must follow. If this doesn't work out, the lender can then ask the court to take enforcement actions. If the court thinks it's necessary, it can issue a Warrant of Execution (and send the bailiffs to the borrower's home), an Attachment of Earnings (and take money directly from the borrower's salary), or a Charging Order (see below).

...to secured debt
A Charging Order is only an option if the borrower is a homeowner.

Basically, a Charging Order turns an unsecured debt into a secured debt by securing it against the borrower's property. If the borrower doesn't then keep up payments on the newly-secured debt, the lender has the option of asking the court to issue an Order for Sale (forcing a sale of the property), although this tends to be a last resort – they know they'll receive the balance of the debt when the property is sold.

Between 2000 and 2006, the number of applications for Charging Orders grew from around 16,000 to almost 93,000. But there's no guarantee the court will grant either a Charging Order or an Order for Sale. After all, the borrower entered into the debt on the grounds that it wouldn't be secured against property, so the court would need to be convinced that a Charging Order is the best way to make sure the debt is repaid.

Staying out of court...
In most cases, there's no need to end up with a Charging Order – or even to end up in court. When someone can't keep up with their payments, there's a wide range of debt solutions that could help them. They could reduce their monthly payments by consolidating their debts, or join a debt management plan and ask debt professionals to negotiate with their lenders on their behalf. People with larger debts could consider an IVA (Individual Voluntary Arrangement).

And most creditors would rather come to an agreement (see our Ten Golden Rules for talking to non-priority creditors) than take legal action – although they're not likely to accept lower payments, waive charges or freeze interest unless they see the borrower doing their best to pay off their debts.

Source: DebtAdvisersDirect.co.uk