Charging Orders: The Times They Are A Changing
An overview of the new process for Charging Orders and how this will affect people in Debt Management Plans and IVAs.
There are important amendments being made to the whole process surrounding Charging Orders. Sadly, as far as I am concerned, debtors will be greatly disadvantaged by the changes, in comparison to the system now.
Briefly, as it stands, when a debtor has a CCJ and is paying in instalments set by the court, then a creditor may not pursue a charge on a debtors property. From 1st October, that protection will no longer exist. Once a CCJ is obtained, then even if a debtor is complying with the terms of the court order then a creditor can still look to enforce the debt via a Charging Order. It is my belief that this will have a very significant impact in more areas than one. I expect to see a very significant increase in the number of charging orders applied for. It is true that a debtor can still put a case to the court why it should not be granted, but whether that will sway the courts from granting the order remains to be seen.
In the current economic climate, disposable incomes are being squeezed to the bone as it is, and a lot of people are on very low contributions based Debt Management Plans. I believe creditors, whilst accepting the payments on a DMP, will be very quick to enforce if they are getting a very low repayment each month. Why does this matter? It matters because it can potentially lead to an order being made to force the sale of a property. I don’t think that will happen in massive numbers, but there will be some cases undoubtedly. If it doesn’t go that far, then the Charging Order may carry statutory interest as well, currently 8% p.a. If a debtor is making a low payment relatively, then the debt may continue to grow with interest.
It is fair to say that most creditors are very good at freezing interest on a DMP, not all of them and not all of the time, but the odds are very good. There is, therefore, usually some light at the end of the tunnel for debtors on a DMP. Now, under the new system, the DMP may be nowhere near as effective if the interest is still mounting up. Some debtors will, inevitably, start prioritising these debts as they are now secured on the property. This isn’t fair on any other creditors though, who will obviously have to suffer. Will that then mean they go for charges as well? Probably. The only losers in this, yet again, are the debtors. Equity in property is going to be seriously eroded, if not completely wiped out. I think the Government has got this badly wrong.
Further, to make a Charging Order final now currently involves two court hearings. Firstly, a creditor obtains an interim Charging Order. There then follows a second hearing to determine whether to make the order final or not. Although there is not a date for this to come into force yet, I am reliably informed that the process will now be for one court hearing with the debtor being given a timescale, say 21 days, to respond. Failure to respond will mean the order becomes final, in effect, by default. This further impacts on a debtors chances of stopping such an order being made final.
What can be done? I think we will see a significant rise in the number of people protecting properties and the equity in them, by looking at legally binding IVAs. Although an IVA does look at equity, it also protects assets. It follows, then, that in cases where previously debtors would not have looked at IVAs because of the equity issue, preferring the less formal DMP, they will now be very attracted to the prospect of having all interest frozen by law, and a guarantee of no further action by creditors.
I will be very interested to hear other peoples views on this.
‘If it doesn’t go that far, then the Charging Order will carry statutory interest as well, currently 8% p.a. If a debtor is making a low payment relatively, then the debt will continue to grow with interest’ No so – Only if the debt is NOT CCA regulated. Nearly all CCJ’s granted on a CCA regulated debt (credit cards,personal loans etc) are CCA regulated and will not incur further interest and will not incur interest at 8%pa on a CO unless specifically stated in the T&C’s (rare on CCA debts) and then the interest can be challenged anyway. The debts that incur interest at 8%pa are normally unregulated, trade or business debts.
As a home owner and recently made redundant, it worries and angers me that ‘home owners’ are being targeted and are bearing the brunt of financial collapse or economic greed, while those in rented accomodatation can claim / earn more for doing no more and no little than those whom own their homes. My very real question is ‘ It it worth owning your home nowdays ? ‘ the risks are higher and you have to pay all your own maintence, building insurance and have less rights to claim help when you really need it. If you own nothing, no one can take it away. I paid for income protection but the insurance company are wriggling as I took the initiative before my leaving date and became a Phoenix Card Trader ( a few hours a week and works like Avon) as it has potential to build. Seems that to survive today you either have to do nothing/ poor or rich. Those law abiding, hard working classes in the middle are penalised. The Law is aiding the lawless far more than ever it should and if we are not careful we will end up being faced with a wild west senario and having to take the law down or at least into our own hands.
I think you are wrong.
Courts will not allow repossessions unless it is with very good reason and totally justified. Judges are very sensible indeed.
Better to have a charge on your property than receive a bankruptcy petition!
How does an IVA protect equity in the long run? If you cannot re-mortgage at the end of the period it is likely to be sold.