On October 1st 2012 the rules surrounding when a Charging Order can be applied for were changed. This means that it is now easier for someone to whom you owe money to apply for a this type of Order against your property as soon as they have successfully got a County Court Judgement (CCJ) against you.

If you are a home owner and are struggling with unsecured debt this is a very important change. If a Charging Order is issued against your home this immediately secures the debt against your property and will restrict your options for resolving your debt problem overall.

We explain the change to the rules in more detail and consider what you can now do to protect your home.

How have the rules regarding Charging Orders changed?

Before 1st October 2012 anyone who wanted to apply for a Charging Order against your property would be first have to get a County Court Judgement (CCJ) against you.

If the CCJ was issued the creditor then had to give you the opportunity to pay this first according to the agreement. Only if you broke the payment terms of the Judgement would they then be entitled to apply for a Charge against you property.

However since the 1st October anyone who successfully applies for a CCJ to enforce their debt can now immediately apply for a Charge against your home if they wish. It does not matter whether or not you are keeping to the payment terms of the CCJ.

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Why does the change cause a problem?

If a Charging Order is issued against your property it can cause you two very significant problems.

The first is that if a debt is secured against your property with a Charge this could prevent you from selling your home. If the sale of the property will not raise sufficient funds to cover both your mortgage and the secured debt, the charge holder can simply refuse to let the sale go through.

The second problem comes if your are struggling with more than one unsecured debt and you decide to use a debt management solution such as an Individual Voluntary Arrangement (IVA). Debts secured against your property cannot be included in these solutions and will have to be paid in full either through a monthly payment plan or ultimately when your property is eventually sold.

BMD Tip: The fact that one of your creditors has issued a Charging Order against your property does not mean that they can force you to sell your home. The only way they can do this is to apply separately for an Order for Sale however the Court is normally extremely reluctant to issue this type of Order in the majority of cases.

Is your home at risk from Charging Orders if you start DMP

A Debt Management Plan (DMP) is one of the most popular and flexible debt management solutions. It involves agreeing reduced payments with all of your unsecured creditors to fit within a budget you can afford.

In the past if you are were a home owner the plan offered the advantage that you could manage your unsecured debts without having to take equity from your home to help pay them if you did not want to.

The only way to force you to pay your debt using home equity would have been first to issue a CCJ against you which you then failed to pay according to its payment terms. However given that you maintained your Plan payments it would have been unusual not to be able to meet the payment terms of a CCJ.

Now after the rule change even if you are sticking to your agreed Plan payments any of your unsecured creditors can apply for CCJ against you and then a charging order to secure their debt.

Are Charging Order applications likely to rise?

It is unclear why the change to the Charging Order rules has been made. The Government has suggested that the change will mean reduced court costs by reducing the paperwork required before a creditor can apply for the Order.

However I feel that it is far more likely that the change has come after strong pressure from the banking community who feel that they need added protection to be able to recover the unsecured debts they are owed.

If this turns out to be true then we can expect to see a marked rise in the number of charging order applications which have actually been falling over recent years.

BMD Tip: Since this article was written the use of Charging Orders has significantly increased possibly due to their use by Debt Purchasers.

As such if you are a home owner and you are struggling with unsecured debts it has become even more important for you to seek professional advice. Even if you are sticking to an agreed DMP this will no longer protect your home from the risk of charging orders. Instead and you will have to consider an IVA which will be the only way to be sure that your home is legally protected.