If a debtor owns property, then obtaining a Charging Order against that property and then taking steps to enforce it can prove a very successful tool in recovering your outstanding debt.
Obtaining a Charging Order
To obtain a Charging Order, you must first obtain a judgment or enforceable order against the defendant. An Interim Charging Order is obtained without prior notice to the debtor simply upon a written Application to the court with evidence that the debtor owns the property and that there is an enforceable Judgment Order. Once the debtor has been served with the Interim Charging Order he has a fixed period of time to object to the Charging Order. If no objection is received then the court will make a final Charging Order without the need for a hearing. However, if any objections are received from the debtor then the court will list the matter for a hearing. At that hearing it is likely that the court will make the final Charging Order unless the debtor can demonstrate that the Judgment Order is or is being set aside or the debt has been paid in full.
The Charging Order is then registered with the Land Registry against the debtor’s property and it will remain registered against the property until the debtor either pays the debt in full or sells the property so that the debt can then be paid from the proceeds of sale.
Enforcing a Charging Order
Judgment creditors may be prepared to wait until the property is sold to receive payment but where the debtor is not making any payments towards the debt and there is no indication that the property is going to be sold in the near future, then it may be worth considering enforcing the Charging Order by making a fresh claim to the court for an order for the sale of the debtor’s property.
The court has a discretion when considering whether to make an order for sale of the property and it is worth noting that where there are children resident at the property or where the debtor is vulnerable, then the court may be reluctant to make an order for sale. However, where the property is only occupied by the debtor or by other adults, the courts are willing to consider making an order for sale. Factors which the court will consider include:-
- The size of the Judgment debt as against the value of the property;
- The conduct of the debtor i.e. whether he has made any effort to make payment;
- If there is any other steps which the Judgment creditor could take to enforce the debt.
There is no maximum/minimum sum for an order for sale except where the debt falls under the Consumer Credit Act where there is a threshold that provides that a regulated debt cannot be less than £1,000 if the charging order is to be enforced by an order for sale.
If the debt has been outstanding without any instalment payments being made and all other enforcement methods have proved unsuccessful or are not applicable and the debtor has made no real effort to co-operate, then providing there is sufficient equity in the property, it should be possible to obtain an order for sale.
Order of sale
An order for sale provides a set period by which payment must be made (usually between 14 to 28 days) for the debtor to pay the Judgment debt in full, failing which they must provide vacant possession of the property. If after the deadline, the debtor has not paid or vacated the property, then the next step will be to apply to the court for a Warrant of Possession which means that the court bailiffs will fix a date and time to take possession the property. Once you have possession of the property, you can then market and sell the property and from the proceeds of sale all prior charge holders will be paid and you will then be paid your Judgment debt and the costs of sale. It is also usual to obtain a costs order in relation to the costs of obtaining the order for sale which can then also be paid from the proceeds of sale and then any balance left can be paid to the debtor.
It is not an enforcement option which is widely used at present, but it is having successful results and in the majority of cases we have dealt with, it has resulted in payment being made in full (including costs) before possession of the property has needed to be taken.
If you have debtors who may own property to enforce against, then please do contact Rachel Brown of our Debt Recovery team either by email at [email protected] or by telephone on 0118 9527257 and we can discuss how we can assist.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.