A DMP (Debt Management Plan) is an informal way of managing your debt. The creditors can still take action against you. One way is through a charging order on your home, which is not ideal. So can you stop it?

Jump to article contents:

• Why do creditors want a charging order?
• How does a creditor get a charging order
• Can I stop a charging order
• Existing charging orders

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Why do creditors want a charging order

Ultimately creditors want to ensure that they get back the money they have lent to debtors. If you are not making the contractual payments creditors have various options open to them. A charging order can offer the creditor the best chance of recouping your debt.

In the first instance creditors will use their own collection agencies to try to get the payments from you. If this does not work they may apply to the court for a CCJ (County Court Judgement). This would involve you submitting your income and expenses details and an affordable payment plan would be set up.

Once a CCJ is in place the creditor could apply for a charging order against your property. Once this is issued the debt becomes secured against your home. This means that when you come to sell your home, the debt would be paid from any profits before the remaining funds come to you.

A charging order usually doesn’t mean that your creditor can force you to sell your house. However the equity in your property is reduced by the value of the debt.

How does a creditor get a charging order

A creditor cannot simply apply secure their debt against your home. They have to apply to the court for a CCJ first. If a CCJ is issued the creditor then has a few options they can pursue to recoup your debt.

One option they have is to apply for an attachment of earnings which means your debt payment is paid directly from your wages. This gives you less control over your income and is hard to stop. Another option for the creditor is to ask the court to appoint bailiffs to attend your home. This is however usually a last resort.

If you are a homeowner, the more likely outcome is that the creditor will look at the possibility of securing the debt against your home. Of course if there is no equity in your home it might not be worth it. However house prices have increased in recent years and could do in the future.

Creditors are more likely to seek a charging order if you have not made any effort to solve your debt problem with them. Your best chance of avoiding it is to speak to them quickly, set up a payment plan and stick to it!

Can I stop a charging order?

Given that it will reduce your equity you may be keen to avoid it. Even if you don’t mind, you should understand that your debt solution options may be reduced if a charging order is put in place. Call us for more advice on this.

If you start a DMP and you are making the proposed payments on time creditors are usually happy with that. Creditors can apply for a CCJ and then a Charging Order against you, but this is not automatically the case. They will usually not take any further action unless you fail to keep up the agreed payments.

If a creditor is set on getting a charging order, you may not be able to stop it. Doing a DMP will not stop this in the way a formal, legally binding solution could. Even if creditors do not go for a charging order initially, this doesn’t mean they can’t change their mind later.

If you are a home owner you can never be 100% certain that your home will be protected if you use a DMP. If you want to be sure that you are not at risk of Charging Orders you could consider an IVA.

Existing charging orders

Unfortunately, if you already have a charging order there is very little you can do to overturn this. Starting a DMP will make no difference to the fact that this debt is secured against your home.

However you can still include payments towards this debt in your Plan. Generally speaking this is a good idea as it will mean the payments are being made towards the debt. Hopefully it will be paid off before the time you come to sell your property.

If you have an existing charging order, this debt is classed as a secured loan. This is the same as a mortgage debt. As such it would not be included in a formal debt solution like an IVA or Bankruptcy. Sometimes having a charging order means that an IVA is not possible. This is because your remaining debts may not be big enough to qualify. All the more reason to try to avoid the charging order in the first place if possible.

If interest is still being added to the debt secured on your home, then ongoing payments are vital. If not you will give up far more of your equity when you finally come to sell your home.