A Charging Order is an order of the court granting the applicant a charge over property belonging to a debtor of the applicant. The effect of a charging order is to turn an unsecured debt into a secured one. It can only be made where judgment has been entered.
County Court Judgments (CCJs)
Your creditor can only apply for a charging order if they have a CCJ against you. There are different rules depending on when the judgment was first entered. If your creditor first applied for the CCJ against you before 1 October 2012 they can apply for a charge on your property if either of the following apply:
- You have been ordered to pay the whole of the debt immediately and you have not done so. This is known as a ‘forthwith’ judgment
- The court ordered you to pay the judgment by instalments but you have missed one or more of the required payments
For a judgment made on or after the 1 October 2012 the creditor can apply to the court for a charging order even if you were ordered by the court to pay by instalments and you have not missed any of those instalments.
Interim Charging Order
Prior to a final charging order being made by the court, the creditor will apply for an interim charging order, this is usually made without a hearing by a court officer. You will then have 14 days to make an objection providing you can show a legal reason why the charge should not have been made.
First your creditor will send a form to the court along with proof from the Land Registry that you own, or jointly own, your home. If the court is in agreement that you own a share of the property and a charging order is allowed under the rules, you'll be sent an interim charging order on form N86 and a copy of the creditor's form N379 giving the reasons they've applied. A copy will also be sent to your spouse or civil partner, any other joint owners and your mortgage provider or other secured lender.
The Land registry should notify you in writing (on form B136) that a notice (or restriction) has been registered. You will not be able to sell your home until the court has made a decision whether to make a final charging order. The interim charging order is issued and a final charging order will be issued 28 days later if you do nothing.
If you have a valid reason to object to the final charging order, you must write to both the court and creditor within 21 days of receiving the interim charging order. Reasons for the objection might be:
- The property doesn’t belong to you, therefore you are not entitled to a share of any equity in it
- The CCJ was obtained before October 2012 and you’ve not missed any instalments set by the court
- The creditor has made an error in the application process , for example they’ve not informed a joint owner
Final Charging Order
If you have not made any written objections, a court officer or sometimes a District Judge will make a decision as to make a final charging order.
If you made an objection, or you requested other conditions are applied, the court may arrange a hearing to decide whether to make a final charging order. The hearing will be at your local County Court and will usually be in private chambers with a District Judge and normally a creditors representative. The judge will take into account both sides before making a decision whether to make the final order (and conditions if requested) or not. If a final charging order is made, you will receive a letter from the court confirming the order on form N87.
You have the right to make a written request to the court to include conditions to the final charging order.
It is always a good to request an affordable instalment order, if there is not one in place already. If the court agrees to this condition and you are able to keep to the payments, the creditor will find it much harder to take further enforcement action through the courts.
If an instalment order is not put in place you risk the creditor taking further action, for example by instructing enforcement agents (bailiffs) to visit. If your CCJ was dated 1 October 2012 or afterwards, an instalment order which is up to date also prevents the creditor applying to force the sale of your home.
If you own your property jointly with your partner and there is a charging order in place it can impose issues when one of you dies.
Most couples will own their home as joint tenants. This means , the property passes straight into the sole ownership of the surviving partner when the other one dies. A charging order changes a joint tenancy into a tenancy in common, which means the share of the property owned by the person who died will form part of their estate and won’t be passed directly to the other person.
Order for sale
Once your creditor has obtained a charging order, you need to ensure you make regular payments to repay the debt. Your creditor could apply to the court for an order for sale if you don't. This would mean you would have to sell your house so the creditor can get their money back.
If your CCJ was dated on or after 1 October 2012, an order for sale will not be allowed if the court told you to pay the debt by instalments and these are up to date.
Orders for sale can only be made for debts of £1,000 or more. In practice, orders for sale are very rare and the courts consider this to be a last resort.
A charging orders can also be obtained in the following ways:
- In some cases it is possible for the Legal Aid Agency to apply a charging order to your home. If you have received legal help for a court case, they can recover the costs of the help when you sell or remortgage your home. This is known as a ‘statutory charge’
- If you have equity in your home and become bankrupt, your house will normally be sold. However the official receiver in bankruptcy may obtain a charging order instead, if the amount of equity is small. Some of your equity will then be paid to the official receiver when you sell or remortgage your home even after the bankruptcy has ended
Interest on charges
For debts regulated by the Consumer Credit Act, interest will stop once the CCJ is issued. In very rare cases, interest will continue on a debt (after a CCJ) providing that this was stipulated in the original agreement.
For debts not regulated by the Consumer Credit Act and debts over £5,000, statutory interest of 8% will be applied. There's no way to stop or reduce this. Legal aid or bankruptcy charging orders of any amount have 8% interest added, and again this can't be stopped or reduced either.