Published in Debt Advice Features on Friday, March 30 2007

Yes!! Firstly I’ll explain what a Charging Order is. A charging order comes from an unsecured debt, where the creditor has applied to a court to get it secured against one of your assets for example your home. This now means they have a stake in your property for example, and if you were to sell the property you would have to clear that debt from the sale. Your mortgage is your first charge, a secured loan the second charge, and then say you had a charging order placed against you this would be the third charge.

They are put in order form the date they were put against your asset. For example you have a property worth one hundred thousand pounds, and your mortgage is fifty thousand pounds, you have a secured loan of twenty thousand pounds, and a charging order of ten thousand pounds, the mortgage would be paid first leaving you with fifty thousand pounds from the sale, then the secured loan would be cleared leaving you with twenty five thousand, then the charging order would be claimed leaving you with fifteen thousand pounds equity from your home.

This means the creditor has got security in the fact that they will definitely get their debt back.

Charging Orders are likely to be placed if you aren’t paying your debts back either not at all or at a lower rate, and you have equity in your home. This can be dangerous when people get advice to go into a debt management plan for forty years, as the creditor will just look up your property on the land registry and go for a Charging Order against you to have more of a guarantee of getting their debt back. Think if you had lent some one money and they had agreed to pay it back in two years, then turned round and said you can have it back but it will take me twenty years, would you look for away to secure a return?

And what happens if property prices drop? Charges get paid off in the the order you obtained them, so this normally means your mortgage is satisfied first, if there then isn’t enough money to clear the Charging Order, then the debt will revert to be unsecured again as there is no asset to secure it on. And this is why you should be wary. You may be paying your mortgage, then decide to sell, and be left with no equity what so ever because of a charging order.