What is a charging order?

What is a charging order?

Charging orders are orders obtained from a court by creditors to whom you owe money. They are a legal "charge" which is placed on some item of your property, typically land or property. It does not ordinarily mean that a creditor will obtain their money immediately, but they will retain a legal "charge" over your assets which give the creditor a legal claim over some or all of the proceeds of the sale of those assets.

How do they work?

Kiran Mistry a leading Insolvency Practitioner explains that a charging order is ordinarily obtained against property or land, although they can be obtained against stocks and shares or other financial assets.

For example, a charging order might be placed against your property if you have a debt to a creditor. It cannot force you to sell the property but on the eventual sale the creditor has a legal right to the amount of money they are owed from the proceeds of the sale. There may be other charges on the property which have to be paid first (a mortgage) but then any remaining proceeds can be claimed via the charging order.

When is a charging order applied for?

A charging order is normally applied after a judgement for debt has been made in a creditors favour but only after you default on the debt repayment when it was due, or if you fail to keep up instalments on the agreed debt repayment plan.

What do I do if I receive a charging order?

The creditor will apply for a charging order in one of the situations above and the creditor must attend the hearing. If the application is granted by the court then an Interim Charging Order is normally issued. At this time you have the opportunity to object to a Final Charging Order being made as long as this is done no less than seven days before the hearing. It is possible for you to request that the case be heard at a court local to your home or business should this be more convenient.

Assuming the court is happy to grant the order you will receive a Final Charging Order form. The Land Registry (in the event that the Order is to be made over Land or property) will also be informed of the Order in order to update the Land Charges Register.

What are the disadvantages of charging orders?

Moe Nawaz a UK turnaround consultant said the main disadvantage of having a Charging Order in place is that it may well secure a previously unsecured debt against your home. If you were to default on an unsecured loan or credit card and were unable to maintain the debt repayments, the lender could apply for a Charging Order to be granted. If this application was granted then the lender could take a legal charge on your home which means that their debt is now secured against your property whereas previously it was unsecured.

Over the last decade there has been a huge increase in applications for charging orders and such applications being granted. There were just over sixteen thousand applications in 2000 with around sixty percent being granted. By 2006 this number had risen to over 92,000 with 72% of applications for Charging Orders being granted.
Charging Orders are, increasingly, a method used by creditors to ensure they recover their debts. For home or landowners or anyone with significant assets it is quite possible that a charging order will eat into the proceeds of the sale of any assets in the event that personal debts accumulate.

Kiran Mistry (Insolvency Practitioner)

Moe Nawaz (Turnaround Consultant)

Kiran Mistry and Moe Nawaz have a combined experience of over 30 years in the Insolvency and Turnaround business. They have helped and advised 10,000's of business owners in the UK.