Charging orders in the county court

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1. What is a charging order?
2. When can a creditor apply for a charging order?
3. How is an application made?
4. How to stop a charging order
5. The house is in joint names but the debt is in your name
6. If you already have an instalment order and are not behind with it
7. Divorce and separation
8. Interest
9. What does a charging order affect?
10. Can the creditor sell your home?
11. Paying off a charging order
12. County Court fees

What is a charging order?

• If a creditor has a county court judgment against you ordering you to repay a debt, they may be able to apply to the court for a charging order to enforce the judgment if you do not pay.
• A charging order gives the creditor security for the debt; in other words, the debt would become "secured" like a mortgage on your house, or other land.
• There must be a hearing in the county court before a charging order can be made and there are several arguments you can use to try to stop an order being made.
• This factsheet explains the court procedure in the county court and what you can do. Some creditors can apply for a charging order after taking you to the High Court. If you think this may have happened, or if you are not sure what to do, phone us for advice.

Phone us for advice 0800 074 6918

When can a creditor apply for a charging order?

The creditor can apply for a charging order if they have a county court judgment against you and:

• You have been ordered to pay the whole debt immediately or by a certain date, (this is known as a "forthwith" judgment) and have not done so.

or

• The court has ordered you to pay the judgment by instalments and you have missed one or more payments.
• If you have an order to pay the debt in instalments and are not behind on the payments the court should not make a charging order. This is because of a very important case called Mercantile Credit Co Ltd v Ellis in 1987. See the section "I already have an instalment order" on page 4.

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How is an application made?

The application for a charging order always has two stages:

STAGE ONE – THE INTERIM ORDER
The creditor makes an application for a charging order and the court will make what is called an interim charging order if it is satisfied that you own, or have a part share (an interest), in the property in question.  This is NOT the final order. An interim charging order is usually made automatically without a hearing and a date for a full hearing is set. A copy of the interim order will be sent to you.

This should be done at least 21 days before the hearing date set by the District Judge. The hearing is for the court to decide whether or not to make the charging order permanent ('Final'). This hearing is likely to be held in the District Judge's private rooms.

The creditor will also register the interim charging order as a "caution" on your property with the Land Registry who should inform you of this in writing. This means you cannot sell the property before the hearing

STAGE TWO - THE FINAL CHARGING ORDER
The second stage is the court hearing in front of the District Judge. At this hearing the court will decide whether to make a permanent charge on the property. This is called a final charging order. If you object to a charging order being made final then you should send the creditor and the court written evidence stating why you object. You should do this at least 7 days before the hearing. This could be in a form of a letter of objection outlining all the arguments you have for why the charging order should not be made. This should be sent by registered post to both the creditor and the court.

If you do this then your arguments should be taken into account by the District Judge at the hearing. You should still go to the hearing and if you do not send any written evidence then it is vital that you go.

The court can refuse to make the charging order so you must serve a notice and go to the hearing. If you cannot attend on that date, contact the court for a different hearing date to be arranged. If you do not go, the charging order is likely to be made final by the court at the request of the creditor.

If the hearing has been arranged in another court, ask for it to be transferred to your local court. You can apply on an application form called an N244 explaining why you can't go to the hearing, e.g. due to the distance, travel or childcare costs. There is a fee for doing this. See the section on fees at the end of the factsheet. Phone us for advice.

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How can I stop a charging order?

The court must consider whether it is reasonable to make a charging order. Under The Charging Orders Act 1979 the court has to consider all the circumstances of the case and in particular:

• The personal circumstances of "the debtor"
• Whether any creditor would be "unduly prejudiced". This means the court has to decide if making a charging order would disadvantage other creditors.

The arguments you can use against the order being made will vary depending on your circumstances, whether you have any other debts, whether you have equity in your house and own your home in joint names or on your own. If you have to go to a hearing phone us for advice.

These are some of the factors that the court may consider:

• Does any member of your family have a disability or serious illness?
• If you have a number of debts and making a charging order in favour of one creditor would give them unfair priority over other unsecured creditors. It is particularly useful if you can show you already have a payment arrangement in place with your other creditors. This would be upset by an order being made. Point out if any of the debts are larger than this debt and if any other creditors have frozen the interest.
• Your creditor is supposed to list all the other creditors that they are aware of in the application for an interim charging order.
• The court can order the interim order to be sent to the other known creditors but does not have to do this. This means that creditors who may want to object to the final charging order being made will not know about the hearing. You can raise this in your written objections and at the hearing if you think a creditor may be "unduly prejudiced" by the charging order being made.
• Could the creditor have given you a secured loan when you first took out the loan? If they decided to offer an unsecured loan instead, this could be particularly relevant if you have other unsecured creditors who may be disadvantaged by a charging order being made.
• There are other ways the court could enforce payment of the debt. You could ask the court to make an instalment order so you make monthly payments you can afford, or an attachment of earnings order so that the instalments would come directly from your wages. This is only useful if you are employed and your employment would not be at risk. We have a factsheet on "Attachment of Earnings in the County Court". Phone us for advice.
• If your debt is covered by the Consumer Credit Act you can apply for a Time Order. Ask the court to look at this application before the charging order. A Time Order can change the monthly payments and extend the length of time you pay the debt for. We have a factsheet on "Time Orders". Phone us for advice.
• If you owe less than £5,000 in total to all your creditors, you can argue that the debt should be included in an administration order rather than the charging order being made final. We have a factsheet on "Administration Orders". Phone us for advice.
• If you are likely to be made bankrupt, you can argue that a charging order would give the creditor an unfair advantage over other unsecured creditors. Phone us for advice about this.
• If your home is worth less than your mortgage (also known as "negative equity"), then you can argue it is not worth a charging order being made, as the creditor would not be paid off, even if they forced your home to be sold.
• If the debt is very small in comparison to the amount of equity in your home, argue that a charging order would be unfair.
• You should point out any particular hardship which your family would suffer if a charging order was to lead to the sale of the home. This is particularly important if the debt is in your name but you own your home jointly so it is not even your partner's debt.

If none of these arguments are successful and the court makes a final charging order, you can still ask the court not to let your house be sold as long as you pay monthly instalments. Make an offer to pay in monthly instalments at the hearing. If the court will not look at your offer at the hearing, you can still apply to pay in instalments by using an application form called N245. For details of how to apply we have a factsheet on "Reducing Payments on a County Court Judgment". Phone us for advice.

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The house is in joint names but the debt is in my name

If the debt is in your sole name, but you own the house in joint names with someone else, they have the right to tell the court all the circumstances and why they would suffer hardship if a charging order is made. They should have been sent a copy of the interim charging order and given an opportunity to go to the hearing to put their points. For example:

• Who paid for the deposit to buy the home?
• Who has made the mortgage payments since?
• If there are children at home, ask the court to put a condition that the house cannot be sold by the creditor until the children have grown up.
• The co-owner will need to file and serve written evidence of their objections at least 7 days before the hearing.

If a charging order is made by the court, then it will only apply to your share of the property.

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I already have an instalment order and am not behind with it

If you have kept up with instalments on a county court judgment then the court should not make a final charging order.

According to a case called Mercantile Credit Co Ltd v Ellis in 1987, a charging order should only be made if the payments on a judgment are in arrears or you were ordered to pay the judgment in one lump sum immediately (forthwith) and didn't pay. This case is very important. If you are in this situation and still have an interim charging order made, you MUST go to the hearing and take evidence that you have kept up with the instalments ordered and mention this case to the district judge. Phone us for advice.

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Divorce and Separation

If you are currently involved in divorce proceedings, or a dispute over dividing up the former matrimonial home, then you must get detailed legal advice from a solicitor. You may be able to stop a charging order being made, depending upon the stage in the divorce proceedings.

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Interest

If a creditor has taken the debt to the county court, they may be able to add extra interest once a charging order is made. Interest cannot be added if:

• the debt is for an agreement regulated by the Consumer Credit Act. This includes most ordinary credit agreements, including bank overdrafts.

or

• the debt is less than £5,000 in total, even if it is not covered by the Consumer Credit Act.
• If the debt is more than £5,000 and not covered by the Consumer Credit Act, then interest is set by the court and runs at a standard rate.

If your creditor is arguing they can charge interest after a county court judgment, we have a factsheet that my be helpful, phone us for advice.

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What does a charging order affect?

A charging order may be made against any item in which you have "an interest". This usually means property that you own (or part own) and will usually be your home. If you own your home in your sole name, then the house will be covered by the final charging order. If you own your home in joint names with someone else then the charging order will cover your share or "beneficial interest" in the property.

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Can the creditor sell my home?

It is rare for the court to allow a creditor who has a final charging order to sell your home. Most creditors are prepared to wait for you to sell your home at some point in the future and to be paid out of the proceeds of the sale. If a creditor is not prepared to wait, then they can apply to the court for a hearing for an order for sale. It is up to the court to decide whether to make an order for sale or not.

The court should take into account the factors outlined above in the section "How can I stop a charging order?".

The court can order a sale where:

• The debt is in your sole name and you are the sole owner.

or

• The debt is in both the names of the joint owners of the house.
• If the debt is in your sole name and the house is in joint names, the creditor gets an "interest" in the house once the charging order is made final. This means the creditor can apply to the court for an order for sale to realise their "interest" in your house. All joint owners (or a married person who is not a joint owner but has an "interest" in the property) should be part of the court proceedings so they can explain their case to the court as well. They should be sent a notice of the hearing and be allowed to attend.

At the hearing the court must look at the following:

• Is there enough equity in the house to cover any mortgages and the charging order debt?
• When you bought the house what did you buy it for? Is it intended as a long-term family home? Is it imagined that an elderly person will live there for their lifetime?
• Welfare of any children should especially be taken into account. Are there special factors such as age, disability or illness? There may be a need for stability at school. The effect on the children of moving house should be considered.
• If the debt is in your sole name, argue that it is not fair for the whole family to lose their home because of a debt belonging to one person.

The court should look at whether the interests of the creditors should outweigh the interests of the family. Argue that, under The Trusts of Land & Appointment of Trustees Act 1996, the court has discretion to say the family's interests outweigh the creditor's interests.

You can still make an offer of payment at this stage and ask the court not to order a sale as long as you keep up with the payments. You can ask the court to adjourn the order for sale proceedings, or to suspend the order.

Remember, it is very unusual for an order for sale to be made. If your creditor is threatening to have your house sold, you will need specialised legal advice. Phone us for advice.

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Paying off a charging order

If you pay off the amount you owe under the charging order, you can apply to the court for the order to be discharged. Ask the court for a certificate of satisfaction on your county court judgment and include evidence of payment. It is usual for creditors to inform the Land Registry that the interim and final charging order have been removed.

For details of the District Land Registry that covers your area contact:

Land Registry Headquarters.
32 Lincoln's Inn Fields
London
WC2A 3PH
Tel No: 020 7917 8888
www.landreg.gov.uk

You can also check details of charges on property on the Land Registry website www.landregisteronline.gov.uk. The creditor may say there is interest on the county court judgment which is still outstanding. If the creditor disagrees that you have paid the charging order in full, phone us for advice.

If you have enough equity in your home, you can also pay off the charging order if you move house, as the charging order will automatically be paid off as part of the sale process.

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County Court Fees

DO I HAVE TO PAY A FEE FOR AN APPLICATION IN THE COUNTY COURT?
There will usually be a fee to pay with your application. You can ask the court not to pay the fee in some circumstances. The form you will need to fill in is called an EX160 'Application for a fee exemption or remission.' This form needs to go to the court with your main application. If the court agrees your application you will not have to pay the fee. If you pay a fee when you should have been exempt or would have qualified for a remission, then you have six months to apply to the court for a refund.

EXEMPTIONS
If you are on income support or income-based jobseeker's allowance (JSA) you can ask the court for exemption from the fee. You need to give the court proof that you are getting the benefit. You will be exempt if you or your partner are on the guarantee credit element of pension credit.

If you are on working tax credit you will be exempt from the court fee in these circumstances:

if you are also on child tax credit,

or

you receive the disability or severe disability element in your working tax credit,

and in either case

your gross annual income taken into account for working tax credit is £15,460 or less (from 6 April 2006).

You will need to show the court your tax credit award notice to qualify.

If you do not qualify under these rules for an exemption then you can ask for the fee to be remitted or waived by the court. See below.

REMISSIONS
Ask the court for the fee to be remitted (or waived) if it will cause you what the court calls " undue financial hardship". You can use the same EX160 application form. You may be on a low income or a benefit that does not automatically exempt you from paying the fee. Give as much information about your circumstances as you can. Explain your financial situation on the application form and any exceptional circumstances that apply in your case. The court can remit all or part of the fee depending on what they decide you can afford.

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Remember: You can always Phone us for advice about any difficulty you are having in dealing with your debts

0800 074 6918

© Copyright National Debtline 1994 (updated May 2006)