Charging orders and orders for property sale
A Charging Order is one of a number of enforcement methods available to Creditors to enforce judgment debts. A Charging Order can only be applied for where a Creditor has obtained court judgment, the court has determined that a Debtor owes money to the Creditor, and the Debtor has failed to satisfy the Judgment debt.
The grant of a Charging Order entitles a Creditor to place a ‘charge’ on the asset specified in the Order which in most cases is the Debtors house or other property. When the asset specified in the Order is sold the amount due to the Creditor is repaid out of the proceeds.
What is an Order for Sale for a property?
Charging Orders do not stipulate that the Debtor must sell the asset in question. However, the Creditor can apply for an Order for Sale i.e. the court will be asked to make an Order to enable the asset to be sold sooner to repay the debt.
Procedures relating to an application for a Charging Order
The application for a Charging Order always has two stages.
1. An Interim Order
2. A Final order.
An interim Charging Order is usually granted by the court to stop a Debtor from selling an asset property before the final Order can be made without your Creditor knowing.
An interim Charging Order is usually made automatically and a copy will be sent to the Debtor with details of when a full hearing will take place.
An interim Charging Order does not mean that a Charging Order has been made against the Debtors. A Court hearing will be fixed for the Court to consider whether a Final Charging Order should be granted. A Debtor will have an opportunity to argue against it at that stage.
The procedure relating the application for a Charging Order is set out in Part 73 of the Civil Procedure Rules see link:
Defending an Application for a Charging Order
At the hearing for a final Charging Order, the court must consider all the circumstances of the case before it decides whether to make the order.
The following may apply and may be used to persuade a Court not to make a Charging Order.
1. There is very little or no equity in the property
This might apply where a mortgage or other secured loans have to be paid back first or where the value of the asset is low.
2. There are alternative methods to pay back the debt
There are other ways to pay back the debt than through a Charging Order – this will depend on the Debtors circumstances.
3. Other Creditors have priority
A Debtor may have other Creditors who take priority and are entitled to be paid back first out of the proceeds of the sale. This might leave little or no money to pay the Creditor who has applied for Charging Order.
4. Agreed arrangement with other Creditors
If a Debtor has agreed with other Creditors to pay back their debts by installments, rather than asking for a Charging Order, the Debtor could argue that one Creditor should not be granted a Charging Order.
5. A Charging Order would prejudice other people who live in the Property
A Debtor may be able to argue other people who live in the property (such as an older person or person with a disability), would be severely affected if your the property had to be sold
Debtors options if a Court has already granted a Charging Order
If a Charging Order has already been granted, a Debtor depending on circumstances may:
- apply for the Order to be set aside
- apply to vary the Charging Order
As the procedure relating to Charging Orders is complex and dependent on particular circumstances, it is important that Creditors and Debtors take advice at an early stage. Get in contact with me whether you are a creditor or debtor, I can help. More about our experience with civil litigation here.
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