Charging orders: Can debt collectors put one on my house and how can I prevent it?

I have a district court judgment against me filed by collection agencies.

They are asking the court to issue an indictment against my house.

They say I have nothing to worry about, and that it would just entitle them to have the debt paid out of the sales money if and when I sell. Do i have to do something? CS

MailOnline Real estate expert Myra Butterworth replies: I am sorry to hear that you have a court judgment against you.

It’s a tough position to put yourself in, but you need to be aware of what it could lead to – being evicted from your property.

We talk to a lawyer about what a creditor is likely to do and how best to respond.

Stephen Gold, ex-judge and author, explains: Yes, you should do something.

But first let’s look through the eyes of creditors in general. A court has ordered that the money they owe be paid by a certain date (sometimes just ‘without delay’) and the debtor has failed to settle. Sometimes this happens because they just don’t care, but often it’s because they don’t have the money to pay and can’t afford it by borrowing.

There are a selection of options open to a creditor to try and enforce their money. The first is sending the bailiffs. But does the debtor own anything of sufficient value that is not exempt from seizure, such as a refrigerator or a service dog?

The creditor can also apply to the court for a wage garnishment order whereby the debtor’s employer deposits a fixed amount on a weekly or monthly basis, which is transferred to the creditor.

But is there anything left of that wage after the necessary living expenses have been paid, and is such an order not possible because the debtor is unemployed or self-employed?

They can also apply to the court for a third-party debt order whereby, for example, money that the debtor has in a bank or mortgage account is passed on to the creditor to pay the debt.

But will the money be needed for that month’s rent, leaving the creditor frustrated or, more likely, will the account be debited or five pence in credit?

They can file for the debtor’s bankruptcy as long as the debt is at least £5,000. But that’s expensive – the creditor has to hand over £1,802 to the court to get things started – and the debtor might not have a bean, or can successfully fend off bankruptcy by claiming it would be a complete waste of time anyway .

And then there is a request for a charging order. Our questioner will understand why so many known creditors, like their own, find this such an attractive route to settlement.

It can be looked for in conjunction with any of the other options we’ve looked at. In 2021, nearly 19,000 payment orders were issued by courts in England and Wales.

The order places the creditor in a similar position to a mortgage lender, effectively turning an unsecured debt into a secured debt.

It prevents the debtor from selling, mortgaging or re-mortgaging its property without paying off the debt owed to the creditor. It can be applied to anything from a house or condo to just a piece of land with a shed, or even stocks.

That may be considered reasonable. However, a payment order is insidious because it can be followed by a court order from the creditor to sell the property and to settle the debt with the sale proceeds.

This means that they can eventually be evicted from the premises. Whether that happens depends on all the circumstances.

Things that would be considered by the court would include what steps the debtor had taken to pay the creditor in installments after the payment order was issued, the size of the debt, and whether the creditor is now an aggressive collection agency buying up debts for peanuts of the original creditors.

A creditor can apply for an order for payment regardless of the amount owed, but judges often look for a debt of at least £200 to justify the imposition of an order.

The creditor will have been more inclined to request the payment order sooner rather than later, as if there were more than one creditor they will be paid out of the proceeds in the same priority as they obtained their order.

The first creditor who obtained an order for payment gets to get their money in full, leaving nothing for the second creditor who was second in line.

How can they resist a tax order?

Our questioner would be better off without it than with a collection order. They can inform the court that the application will be rejected when they receive notice that an interim measure, called an interim measure, has been issued.

Then there will be a hearing that they must attend and they must send the court and the creditor a written statement in advance explaining why they are objecting.

The court may not make the order final if the property has negative equity — the outstanding mortgage exceeds its value — or close to it, or if the debtor has already started paying off what he owes.

Even if the order is final, the debtor can invite the court to rule that it should bar the creditor from applying for the property to be sold as long as the debtor pays the court debt in installments at a rate of £x per month or at such other rate as the court may determine from time to time.”

If our questioner could borrow from relatives or friends a lump sum less than what he owed – it could be considerably less – it would be possible for them to offer that to the creditor in full and final settlement. It can be favored on a ‘bird in hand’ basis.

An important point of attention. When the judgment debt is at least £5,000, it will generally bear simple interest at 8 per cent from the date of the judgment until settlement.

However, if the creditor takes steps to enforce the judgment in the district court, their right to interest may be forfeited.

Sending the bailiff or requesting an interrogation of the debtor about the finances stops the interest as long as it brings in some money. No interest is charged during the term of a wage garnishment. But a request for a charging job won’t stop the interest.