Leading the charge
The use of Charging Orders as a means of enforcement of a debt has been increasingly popular over recent years as the equity in a debtor’s property is often his most valuable asset. The law in this area has today changed to allow Charging Orders to be obtained even where the debtor has an instalment order in place and is maintaining their payments.
The essence of a Charging Order is that a Creditor can turn an unsecured debt into a secured debt. A Charging Order operates in a similar way to a mortgage. The loan (or, in this case, the Judgment debt) is secured against the property. When the property is sold, the charge is paid off before any equity in the property is released to the seller. Although not technically a method of enforcement (as monies are not immediately obtained from the debtor), Charging Orders are an inexpensive and effective method of securing a Judgment debt.
A Charging Order will not normally result in immediate payment but may safeguard the value of the debt for the future. Whilst a Charging Order may postpone payment of a debt, the debtor is entitled to claim continuing interest on the amount, currently at 8% per annum. A Charge can remain on a house with little equity until its value increases to a sufficient level to satisfy the debt.
A Charging Order will rank behind any pre-existing mortgage or charge and will take effect in chronological order. A Judgment can remain outstanding and unenforced for years while the creditor waits for the right moment to enforce it. A historical Judgment can now or at some point in the future be secured by way of a Charging Order where the debtor is in a better position financially than they were at the time of the Judgment.
Once you have an unpaid Judgment against a debtor, the process of obtaining a Charging Order is in two stages:
Firstly, an Application is made to the Court and an Interim Charging Order placed on the debtor’s property. This is then registered at the Land Registry so that the property cannot be sold before the Order is made final.
Secondly, a Court hearing will take place where the Judge will decide whether to make the Order final. Generally the Order will be made final as it is for the debtor to show why there should not be a final Order.
Once a Charging Order is in place, it may be possible to apply to the Court for an Order for Sale which will require the debtor’s property to be sold to discharge the debt, similar to a re-possession.
Otherwise, the Charge can simply remain on the property.
The rules changed on 1 October 2012, making it possible for a Charging Order to be obtained even where a debtor is maintaining payment by way of instalments. This will prevent debtors from paying by instalments whilst disposing of assets to frustrate the enforcement process. Whilst it will become possible to obtain a Charging Order, it will not be possible to enforce the Charge by way of an Order for Sale as long as the debtor continues to meet their instalment payments.