What is a charge on a property?

No one wants debt on their shoulders, but sometimes it can prove unavoidable. While many people are able to keep their heads above water, many often struggle to pay debt back.

If you're a property owner, debt can lead to a charge being placed on your property. What does this mean, and how can it affect you?

What is a charge on a property?

When a lender or creditor takes someone to court for a debt, they can get a County Court Judgment (CCJ) to force the borrower to repay the money. If they take out this court order, they can then apply for another, which places a 'charge' on the borrower's property. This is often called a 'charging order'.

Is a charging order serious?

It's serious! A charging order is a legal action that can have significant ramifications for your home. By placing a charge on your property, creditors or lenders receive the rights to the proceeds from its sale.

If you own the property jointly with someone but the debt is only in your name, the creditor can get a charging order for your share of the property - also known as your ‘interest’.

On its own, a charging order cannot force the sale of a debtor's property, but it can be used as a precursor to more serious actions - including a forced sale through an order for sale.

When can creditors get a charging order against my home?

Creditors can only take out a charging order against your home if you fail to make the payments required by a County Court Judgement. Indeed, any form of non-compliance with the creditor's CCJ could result in a charging order application - as long as the courts agree with the creditor's claim in the hearing.

Charging order application process

Let's take a look at the charging order application process - at what point will the application process to the next stage? And is there anything you can do?

1. County Court Judgment

The creditor initiates a court case, and if the court rules in their favour, a CCJ is issued. A CCJ outlines the debts you owe and the terms you must adhere to in order to satisfy the debt and avoid further legal action.

A typical CCJ includes:

• Your name, address, and identity as a debtor.
• The name and address of the creditor or lender.
• How much you owe, including interest or court fees.
• Repayment schedule and deadline: The terms by which you must repay the debt, including how much you owe, the due date(s) for payment, and the final deadline. The schedule is usually based on your financial circumstances and what the court determines is affordable.
• The consequences for non-compliance.

Along with the CCJ, you will be delivered a N9A form, which allows you to admit to all or part of a claim, and pay back the money you owe.

Your credit score

County court judgments (CCJs) become public because they're linked to court proceedings. This public record can harm your credit score, making it tougher to get credit in the future. Plus, it gives creditors a legal basis for taking more action, like applying for a charging order.

2. Interim charging order

After obtaining the CCJ, the creditor can apply for an interim charging order to confirm their interest in your property. Once an interim charging order is issued, the creditor is entitled to receive a share of the proceeds from a potential sale.

Let's pick up from where the CCJ left off.

• When you don't meet the terms specified in the CCJ, the creditor or lender goes to court to request an interim charging order. They show evidence from the Land Registry to prove you own the property, either on your own or with someone else.
• If the court decides that a charging order is the right move, you'll get an interim charging order and a copy of the creditor's N379 application form. They'll also send these papers to your spouse, partner, co-owners of the property, your mortgage company, and other lenders.
• A restriction is put on the Land Registry, which stops you from selling your property until the final charging order hearing. You'll get a B136 notice to let you know about this.

Interim charging orders are given without a formal hearing. If you don't respond to the order, a court officer will issue the final charging order 28 days later.

3. Final charging order

If you don't respond to the interim charging order, the creditor can apply for a final charging order. If the court finds that you've not complied with the CCJ or interim order, and the debt remains unpaid, the court will likely grant it.

The final order consolidates the creditor's legal interest in the property, making it more likely that they can recover the debt if the property's sold or refinanced. It doesn't automatically force the sale of the property, but allows for the passing of an order for sale.

4. Order for sale

If you don't pay back your charging order debt, an order for sale is the last action a court will take to force the sale of your property. The sale proceeds will go to the creditors with a legal charge on your home.

But it's not all doom and gloom - there's a chance for you to prevent the sale of your home, even at this late stage. If a creditor applies for an order for sale, there will be another court hearing. You'll get the chance to explain your situation to a judge. Orders for sale are only granted as a last resort.

StepChange's analysis of Ministry of Justice data from 2014 suggest an average of only 19 orders for sale per month in the whole of England and Wales, compared to 3,600 final charging orders per month. This would suggest that most final charging orders never progress to orders for sale, provided that the debtors renegotiate with their creditors, and seek help.

What can I do to prevent a charging order?

No one wants to lose their home. That's why it's essential to act fast in a situation where a charging order feels inevitable.

1. Seek advice

Consult with a solicitor or adviser who can provide guidance on available options and help you navigate the process.

Whether you can afford a solicitor or not, it's always worth contacting the debtor's charity, StepChange. Renowned in the UK for their professionalism, compassion, and advice, StepChange can help manage your debt problems, and even help renegotiate with creditors on your behalf.

2. Negotiate

Open communication with the creditor is crucial. Try negotiating a repayment plan or settlement that satisfies the debt collectors and creditors and prevents the case from progressing to a final charging order. If you are finding it difficult or need help, ask an expert to do it for you (StepChange).

3. Apply

If you're dealing with a CCJ and struggling to manage loan repayments, you have the option to apply for a variation order. This order enables you to request changes to the CCJ terms to better align with your financial situation, especially if the existing instalments are too burdensome.

You have the flexibility to request a variation whenever your circumstances change. However, it's important to keep in mind that there's a £14 court fee associated with this application. If your income is limited, you may qualify for a fee waiver, allowing you to apply for free. You can kick start the process of seeking assistance with the court fee online and determine your eligibility.

How do I apply to vary a CCJ?

To apply to vary a CCJ, you need to fill in a N245 form. This is similar to the N9A you were sent when the creditor began court action, except this form allows you to either suspend a warrant or change the amount you owe.

4. Settle

If you can afford it, consider paying off the outstanding debt in full before the final charging order is issued. This can remove the creditor's reason for pursuing the final charging order.

5. Challenge

If you believe that the charging order was obtained improperly or if you have valid reasons to dispute the debt, you may challenge the charging order in court. However, you should seek advice from a solicitor or legal professional to determine the viability of such a challenge.

Consumer Credit Act and debt interest

Passed in 1972, the Consumer Credit Act establishes specific rules for enforcing charging orders linked to consumer credit agreements, requiring the creditor to secure a CCJ for the debt, and the debtor to have failed the terms of a repayment plan.

If your debt falls under the Consumer Credit Act (credit card, store card, personal loan, overdraft, or payday loan debts), the interest on your debt freezes when the CCJ is issued. In rare cases however, interest may persist if the original contract permits it.

If the debt isn't covered by the act and exceeds £5,000, an 8% statutory interest may be added.

If you already have a charging order...

You have the option to communicate with the court and request specific conditions be imposed on the charging order. One condition we highly recommend is requesting an affordable instalment order, especially if one hasn't already been established. This involves the court setting up a reasonable and manageable payment plan.

If the court approves this request and you maintain the agreed-upon payments, it becomes significantly more challenging for the creditor to pursue additional enforcement actions through the court.

However, if no instalment order is put in place, there's a potential risk that the creditor might take further actions, such as instructing bailiffs to visit. Having an up-to-date instalment order also serves as a safeguard against the creditor applying to force the sale of your home.

It's worth keeping in mind that if you have little or no equity in your property, creditors are less likely to seek a charging order.

Summary: Charging orders are no game

If you find yourself with a charging order, it's essential that you receive help and advice from a legal or financial expert. Negotiating with the courts and creditors, and then creating and sticking to an affordable repayment plan, is essential for your escape from debt and risk.