Debt and Property Issues: Understanding Charging Orders

Dealing with debts can be a challenging journey, and for creditors seeking repayment, the legal process of obtaining a charging order becomes a crucial tool. In this Johnny Debt guide, we delve into the intricacies of charging orders, exploring what they entail and shedding light on the key aspects that both creditors and debtors should understand.

What is a Charging Order?

A charging order is a legal mechanism employed by creditors to secure a debt owed to them. This process serves as a means to safeguard the creditor’s interests by placing a lien on the debtor’s asset, typically a house or other property. Essentially, the charging order grants the creditor the right to be paid from the proceeds if the asset is sold.

This legal order is issued by the court and places a ‘charge’ on the judgment debtor’s property. The charge amount corresponds to the debt owed to the creditor. While a charging order doesn’t provide an immediate influx of funds to the creditor, it acts as a safeguard for future reimbursement.

If the judgment debtor possesses stocks, shares, or funds, the court can also place a charge on these assets, mirroring the process applied to real property. If a creditor is aware of any additional assets, they could also apply for a Third Party Debt Order (TPDO)!

Can I Sell My Property if There is a Charging Order on It?

A common concern for individuals facing a charging order is whether they can still sell their property. The answer is affirmative; however, there are important considerations. The presence of a charging order implies that, in the event of a property sale, the charge must be settled before any proceeds are directed to the debtor. It’s crucial to note that while a charging order doesn’t compel the judgment debtor to sell their property, a creditor with a charge can potentially force a sale. In such a scenario, any charges against the property take precedence in the payment hierarchy.

Priority of Charges

Understanding the priority of charges on a property is pivotal. In situations where there are multiple charges, such as those arising from mortgages, a pecking order is established. Charges are paid in a specific sequence, with certain charges taking precedence over others. For instance, charges associated with mortgages will typically be settled before other types of charges.

Who Can Apply for a Charging Order?

The eligibility to apply for a charging order is restricted to creditors who have secured a County Court Judgement (CCJ) against the debtor. Not all types of creditors have the authority to pursue a charging order. A CCJ is a legal order obtained through the county court, confirming that the debtor owes a specified amount to the creditor. Once a CCJ is in place, the creditor can proceed with the application for a charging order as a means to secure the debt against the debtor’s assets.

Alternatives to Selling the Property

While a charging order provides the creditor with the potential to force a sale of the debtor’s property, exploring alternative arrangements can be more flexible and mutually beneficial. Creditors may be open to negotiating with the debtor on alternatives such as extending the repayment term or accepting a lump sum payment to settle the debt. These options offer a more nuanced approach, allowing debtors to meet their financial obligations without the necessity of selling their property. Effective communication between both parties is key to exploring and implementing these alternatives.

How Can I Stop a Charging Order?

Contesting a charging order is not a straightforward process, but it can be done. If the judgment debtor or anyone served with an interim charging order wishes to object to the final order, they must file written evidence and serve a copy on the creditor at least 7 days before the hearing. The judge considers the creditor’s application and any objections raised, either dealing with them immediately or providing directions for a later hearing. If objections are deemed justified, the application may be dismissed, potentially leading to the creditor being unable to recover the application fee and facing costs for the objections raised.

Preventing a charge from being placed against one’s property is challenging but not impossible. Seeking advice from organisations like Citizens Advice are they good of bad? (read this first) can provide guidance on the necessary steps to take in order to prevent a charging order.

Dealing with Debts to Prevent a Charging Order

Charging orders often arise when debtors fail to engage with creditors. Creditors, aware of property ownership, may pursue a charging order to secure the debt. Proactive communication with creditors is a potent strategy for preventing charging orders. Establishing a consistent dialogue and negotiating arrangements, such as entering into a Debt Management Plan, can deter creditors from pursuing this legal avenue.

In conclusion, understanding charging orders is essential for both creditors and debtors navigating the complex terrain of debt and property issues. From the legal intricacies of obtaining a charging order to the potential alternatives to selling a property, this guide provides valuable insights to empower individuals on both sides of the debt equation. As with any legal matter, seeking professional advice, particularly from organisations like Citizens Advice, can be instrumental in making informed decisions and navigating the complexities of charging orders.

For further reading we would advise that you have a look at this post on Property and Debt Problems. The problem with Charging Orders, is that once the creditor starts the process of obtaining a charging order, it is very difficult to stop the process. You really need to prevent any of your debts becoming a County Court Judgment, which can then lead to a Charging Order.