Charging Order

A charging order gives a creditor security for debt owed, in other words, the debt would become “secured” like a mortgage on your house or other lands. If a creditor has a county court judgment against a debtor ordering the debtor to repay a debt, the creditor may be able to apply to the court for a charging order to enforce the judgment if payment is not made. However, there must be a hearing in the county court before a charging order can be made.

A creditor can apply for a charging order if they have a county court judgment against the debtor and either:

• The debtor has been ordered to pay the whole debt immediately or by a certain date, (this is known as a “forthwith” judgment) and has not done so, or;
• The court has ordered the debtor to pay the judgment by instalments and has missed one or more payments. But, if an order is made to pay the debt in instalments and there are no arrears on the payments the court should not make a charging order. This rationale was held by the courts in Mercantile Credit Co Ltd v Ellis in 1987.

The court must consider whether it is reasonable to make a charging order. Under The Charging Orders Act 1979 the court has to consider all the circumstances of the case and in particular:

• The personal circumstances of “the debtor”
• Whether any creditor would be “unduly prejudiced”. This means the court has to decide if making a charging order would disadvantage other creditors.
• If the debt is very small in comparison to the amount of equity in your home, it is possible to argue that a charging order would be unfair and give cogent reasons. If the debt is in your sole name, but you own the house in joint names with someone else, the creditors have the right to tell the court all the circumstances and why they would suffer hardship if a charging order is made.
• Does any member of your family have a disability or serious illness?
• Could the creditor have given you a secured loan when you first took out the loan? If they decided to offer an unsecured loan instead, this could be particularly relevant if you have other unsecured creditors who may be disadvantaged by a charging order being made.
• If you are likely to be made bankrupt you can argue that a charging order would give the creditor an unfair advantage over other unsecured creditors.
• If your home is worth less than your mortgage (also known as, negative equity), then you can argue it is not worth a charging order being made, as the creditor would not be paid off, even if they forced your home to be sold.
• You should point out any particular hardship that your family would suffer if a charging order was to lead to the sale of your home. This is particularly important if the debt is in your name but you own your home jointly so it is not even your partner’s debt.

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