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LEGAL Advice Negative Equity


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LEGAL Advice Negative Equity

  1. 1. THE UK INSOLVENCY HELPLINE CHARGING ORDERS IN THE COUNTY COURT F WHAT IS A CHARGING WHEN CAN A CREDITOR APPLY A ORDER? FOR A CHARGING ORDER? • If a creditor has a county The creditor can apply for a charging order if they C court judgment against you ordering you to repay a debt, have a county court judgment against you and: • You have been ordered to pay the whole debt T they may be able to apply to the court for a charging order to enforce the judgment if immediately or by a certain date, (this is known as a “forthwith” judgment) and have not done you do not pay. so. • A charging order gives the or S creditor security for the debt; in other words, the debt • The court has ordered you to pay the judgment would become “secured” like by instalments and you have missed one or H a mortgage on your house, or other land. more payments. • If you have an order to pay the debt in E • There must be a hearing in instalments and are not behind on the payments the county court before a the court should not make a charging order. E charging order can be made and there are several This is because of a very important case called Mercantile Credit Co Ltd v Ellis in 1987. See arguments you can use to try the section “I already have an instalment T to stop an order being made. order” on page 4. • This factsheet explains the HOW IS AN APPLICATION MADE? court procedure in the county court and what you can do. N Some creditors can apply for a charging order after taking The application for a charging order always has two stages: you to the High Court. If O you think this may have happened, or if you are not STAGE ONE – THE INTERIM ORDER sure what to do, phone us The creditor makes an application for a for advice. charging order and the court will make what is 15 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 Charging Orders in the County Court 1
  2. 2. hearing and a date for a full hearing is set. A copy of the interim order will be sent to you. If the hearing has been arranged in another This should be done at least 21 days before the court, ask for it to be transferred to your local hearing date set by the District Judge. The court. You can apply on an application form hearing is for the court to decide whether or not called an N244 explaining why you can't go to to make the charging order permanent the hearing, e.g. due to the distance, travel or ('Final'). This hearing is likely to be held in childcare costs. There is a fee for doing this. the District Judge’s private rooms. See the section on fees at the end of the factsheet. Phone us for advice. The creditor will also register the interim charging order as a “caution” on your property with the Land Registry who should inform you HOW CAN I STOP A CHARGING of this in writing. This means you cannot sell the property before the hearing. ORDER? STAGE TWO – THE FINAL CHARGING The court must consider whether it is reasonable ORDER to make a charging order. Under The Charging Orders Act 1979 the court has to consider all the The second stage is the court hearing in front circumstances of the case and in particular: of the District Judge. At this hearing the court • The personal circumstances of “the debtor” will decide whether to make a permanent charge on the property. This is called a final • Whether any creditor would be “unduly charging order. If you object to a charging prejudiced”. This means the court has to order being made final then you should send decide if making a charging order would the creditor and the court written evidence disadvantage other creditors. stating why you object. You should do this at least 7 days before the hearing. This could be The arguments you can use against the order in a form of a letter of objection outlining all being made will vary depending on your the arguments you have for why the charging circumstances, whether you have any other debts, order should not be made. This should be sent whether you have equity in your house and own by registered post to both the creditor and the your home in joint names or on your own. If you court. have to go to a hearing phone us for advice. These are some of the factors that the court may If you do this then your arguments should be consider: taken into account by the District Judge at the hearing. You should still go to the hearing and • Does any member of your family have a if you do not send any written evidence then it disability or serious illness? is vital that you go. • If you have a number of debts and making a The court can refuse to make the charging charging order in favour of one creditor would order so you must serve a notice and go to give them unfair priority over other unsecured the hearing. If you cannot attend on that creditors. It is particularly useful if you can date, contact the court for a different show you already have a payment arrangement hearing date to be arranged. If you do not in place with your other creditors. This would go, the charging order is likely to be made be upset by an order being made. Point out if final by the court at the request of the any of the debts are larger than this debt and if creditor. 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. Charging Orders in the County Court 2
  3. 3. • The court can order the interim order to be sent made, as the creditor would not be paid off, to the other known creditors but does not have even if they forced your home to be sold. to do this. This means that creditors who may want to object to the final charging order being • If the debt is very small in comparison to the amount of equity in your home, argue that a made will not know about the hearing. You charging order would be unfair. can raise this in your written objections and at the hearing if you think a creditor may be • You should point out any particular hardship “unduly prejudiced” by the charging order which your family would suffer if a charging being made. order was to lead to the sale of the home. This is particularly important if the debt is in • Could the creditor have given you a secured your name but you own your home jointly so loan when you first took out the loan? If they it is not even your partner’s debt. decided to offer an unsecured loan instead, this could be particularly relevant if you have other If none of these arguments are successful and the unsecured creditors who may be disadvantaged court makes a final charging order, you can still by a charging order being made. ask the court not to let your house be sold as long as you pay monthly instalments. Make an offer to • There are other ways the court could enforce pay in monthly instalments at the hearing. If the payment of the debt. You could ask the court court will not look at your offer at the hearing, to make an instalment order so you make you can still apply to pay in instalments by using monthly payments you can afford, or an an application form called N245. For details of attachment of earnings order so that the how to apply we have a factsheet on “Reducing instalments would come directly from your Payments on a County Court Judgment”. wages. This is only useful if you are employed Phone us for advice. and your employment would not be at risk. We have a factsheet on “Attachment of Earnings in THE HOUSE IS IN JOINT NAMES the County Court”. Phone us for advice. BUT THE DEBT IS IN MY NAME • If your debt is covered by the Consumer Credit Act you can apply for a Time Order. Ask the If the debt is in your sole name, but you own the court to look at this application before the house in joint names with someone else, they have charging order. A Time Order can change the the right to tell the court all the circumstances and monthly payments and extend the length of why they would suffer hardship if a charging time you pay the debt for. We have a factsheet order is made. They should have been sent a copy of the interim charging order and given an on “Time Orders”. Phone us for advice. opportunity to go to the hearing to put their • If you owe less than £5,000 in total to all your points. For example: creditors, you can argue that the debt should be • Who paid for the deposit to buy the home? included in an administration order rather than the charging order being made final. We • Who has made the mortgage payments since? have a factsheet on “Administration Orders”. • If there are children at home, ask the court to Phone us for advice. put a condition that the house cannot be sold by the creditor until the children have grown • If you are likely to be made bankrupt, you can up. argue that a charging order would give the • The co-owner will need to file and serve creditor an unfair advantage over other written evidence of their objections at least 7 unsecured creditors. Phone us for advice days before the hearing. about this. If a charging order is made by the court, then it • If your home is worth less than your mortgage will only apply to your share of the property. (also known as “negative equity”), then you can argue it is not worth a charging order being Charging Orders in the County Court 3
  4. 4. If your creditor is arguing they can charge interest I ALREADY HAVE AN INSTALMENT after a county court judgment, we have a factsheet ORDER AND AM NOT BEHIND that my be helpful, phone us for advice. WITH IT WHAT DOES A CHARGING ORDER If you have kept up with instalments on a county court judgment then the court should AFFECT? not make a final charging order. According to A charging order may be made against any item in a case called Mercantile Credit Co Ltd v Ellis in which you have “an interest”. This usually 1987, a charging order should only be made if means property that you own (or part own) and the payments on a judgment are in arrears or will usually be your home. If you own your home you were ordered to pay the judgment in one in your sole name, then the house will be covered lump sum immediately (forthwith) and didn’t by the final charging order. If you own your pay. This case is very important. If you are in home in joint names with someone else then the this situation and still have an interim charging charging order will cover your share or quot;beneficial order made, you MUST go to the hearing and interest” in the property. take evidence that you have kept up with the instalments ordered and mention this case to CAN THE CREDITOR SELL MY the district judge. Phone us for advice. HOME? DIVORCE AND SEPARATION It is rare for the court to allow a creditor who has a final charging order to sell your home. Most If you are currently involved in divorce creditors are prepared to wait for you to sell your proceedings, or a dispute over dividing up the home at some point in the future and to be paid former matrimonial home, then you must get out of the proceeds of the sale. If a creditor is not detailed legal advice from a solicitor. You may be prepared to wait, then they can apply to the court able to stop a charging order being made, for a hearing for an order for sale. It is up to the depending upon the stage in the divorce court to decide whether to make an order for sale proceedings. or not. INTEREST The court should take into account the factors outlined above in the section “How can I stop a If a creditor has taken the debt to the county court, charging order?”. they may be able to add extra interest once a charging order is made. Interest cannot be added The court can order a sale where: if: • The debt is in your sole name and you are the • the debt is for an agreement regulated by the sole owner. Consumer Credit Act. This includes most or ordinary credit agreements, including bank overdrafts. • The debt is in both the names of the joint or owners of the house. • the debt is less than £5,000 in total, even if it is • If the debt is in your sole name and the house not covered by the Consumer Credit Act. is in joint names, the creditor gets an quot;interestquot; in the house once the charging order is made • If the debt is more than £5,000 and not covered final. This means the creditor can apply to the by the Consumer Credit Act, then interest is set court for an order for sale to realise their by the court and runs at a standard rate. quot;interestquot; in your house. All joint owners (or a married person who is not a joint owner but has an quot;interestquot; in the property) should be Charging Orders in the County Court 4
  5. 5. part of the court proceedings so they can Remember, it is very unusual for an order for sale explain their case to the court as well. They to be made. If your creditor is threatening to have should be sent a notice of the hearing and be your house sold, you will need specialised legal allowed to attend. advice. Phone us for advice. At the hearing the court must look at the following: PAYING OFF A CHARGING ORDER • Is there enough equity in the house to cover If you pay off the amount you owe under the any mortgages and the charging order debt? charging order, you can apply to the court for the order to be discharged. Ask the court for a • When you bought the house what did you buy certificate of satisfaction on your county court it for? Is it intended as a long-term family judgment and include evidence of payment. It is home? Is it imagined that an elderly person usual for creditors to inform the Land Registry will live there for their lifetime? that the interim and final charging order have been removed. • Welfare of any children should especially be taken into account. Are there special factors For details of the District Land Registry that such as age, disability or illness? There may covers your area contact: be a need for stability at school. The effect on Land Registry Headquarters. the children of moving house should be 32 Lincoln’s Inn Fields considered. London • If the debt is in your sole name, argue that it is WC2A 3PH not fair for the whole family to lose their home Tel No: 020 7917 8888 because of a debt belonging to one person. The court should look at whether the interests of You can also check details of charges on property the creditors should outweigh the interests of the on the Land Registry website family. Argue that, under The Trusts of Land & The creditor may Appointment of Trustees Act 1996, the court has say there is interest on the county court judgment discretion to say the family's interests outweigh which is still outstanding. If the creditor disagrees the creditor’s interests. that you have paid the charging order in full, phone us for advice. You can still make an offer of payment at this stage and ask the court not to order a sale as long If you have enough equity in your home, you can as you keep up with the payments. You can ask also pay off the charging order if you move house, the court to adjourn the order for sale proceedings, as the charging order will automatically be paid or to suspend the order. off as part of the sale process. Charging Orders in the County Court 5
  6. 6. 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 quot;Application for a fee exemption or remission.quot; 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. REMEMBER: You can always contact us for advice about any difficulty you have in dealing with your debts. Freephone: 0800 074 6918 Website: © Copyright Money Advice Trust (updated May 2006) Whilst we endeavour to keep our factsheets as up to date as possible, The UK Insolvency Helpline cannot be held responsible for changes in legislation or for developments in case law since this edition of the factsheet was issued. Charging Orders in the County Court 6