Charging Orders - A Useful Debt Recovery Tool

Posted by Chris Ringham on Jul 14, 2021 10:58:00 AM

Charging Orders - A Useful Debt Recovery Tool

When you take someone to court for an unpaid debt, you hope they will respond to the court order to pay the money they owe.

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If they fail to pay within the specified time stated on the court document, you then have the option of filing for a judgment. A judgment is a court order that then gives you various enforcement options if the debtor has not paid by this point of the proceedings.

You could instruct a court bailiff or enforcement agent to attempt to seize goods to the value of the debt, or you could decide that if the debtor owns their own property, you might want to apply for a charging order.

What Is A Charging Order?

In simple terms, a charging order is a court order that secures your judgment debt against the debtor’s property or assets.

If someone owns a property, even if it is subject to a mortgage, they will likely have a certain amount of equity accumulated since they bought it, less any mortgage amount they owe.

This equity is money that you could legally force the debtor to pay you when they sell the property if you successfully obtain a charging order.

You can apply to the court for a charging order, and the process will usually take about 6-8 weeks to be completed in the form of a court order that secures the debt against their property.

When Will You Get Paid?

It is essential to understand that you are not forcing the sale of the property. Instead, you are ensuring that the money you are owed will have to be paid back to you out of the sale proceeds once the mortgage has also been settled.

If the court grants you a charging order, this is a legal document that registers your claim with Land Registry and can’t be ignored by the debtor when they sell.

A charging order is an excellent debt recovery tool for improving your position when getting your debt paid at some point. However, it could be some time before you see the cash as the debtor might not sell their home unless forced to by the mortgage company if they are in arrears.

Obtaining a charging order gives you an enforcement edge, and it could be that the debtor finds a way to pay your debt so that they can clear the order obtained against their property.

When someone sells their home and is subject to a charging order, this will be identified as part of the conveyancing process.

A charging order is an excellent tool for securing your debt against what is likely to be a debtor’s prime asset, and although you may not get paid straight away, you do have a degree of certainty that you will pay the debt at some point.

Although a charging order is not strictly an enforcement method in the same way as instructing a bailiff, it is well worth considering.

These orders are now seen regularly in conveyancing UK house-selling procedures.

Steps For Obtaining A Charging Order

There are two steps to obtaining a charging order. Firstly, you make an application for an interim order. The purpose of this is to stop a debtor from selling their property without telling you and before you manage to get the final order approved.

The final order follows after the interim order, and that is after 28 days has lapsed when the debtor has an opportunity to file an objection to the court.

The court judge will decide to grant an interim order and set a hearing date for a final charging order to be granted.

There are scenarios where the court might not grant a charging order, such as when there is little or no equity in the property, or if it is deemed unfair to other people living in the property, or deemed unfair to other creditors.

You can get more information on debt recovery enforcement methods here. Also, please feel free to talk to us about your options if you are trying to recover a debt and considering whether a charging order might be the right course of action.

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Image source: Pixabay

Topics: Civil Litigation, Landlords, Debt recovery