Can your house really be at risk if you get into difficulties repaying something like a credit card bill? You might think the answer is “no”, but there are some rare situations where this can happen. It helps to know the facts, so you can make good decisions about how to deal with your debts.
This article looks at unsecured debts – credit cards, unsecured loans, catalogues, payday loans etc. It doesn’t apply to secured debts such as your mortgage, where the rules for repossession are very different.
How can a creditor sell my house?
It’s not easy! There are three legal stages a creditor has to go through:
Step 1 – County Court Judgment (CCJ)
Without a CCJ, there is no chance of a charging order or a visit from bailiffs. If you don’t have a CCJ but a debt collector is threatening this sort of thing then don’t panic, they are just trying to pressure you into paying them. It’s not good to ignore a debt collector though, so read Threats of CCJs – Is the Debt Collector Bluffing? and find out how you should react.
What you need to do – as soon as you get any papers from the court, you need to take action, even if you can’t afford to clear the debt. See Debt Camel’s articles on CCJs for details and if you are at all unsure, phone National Debtline who can discuss the details of your case in confidence.
Step 2 – Charging Order
A Charging Order, if granted by the court, puts a legal charge on your house. Say you already have a mortgage and a secured loan – this charge will then be third in priority, so if your house is sold your mortgage is paid off first, then the secured loan then (if there is enough equity left) this new charge. If you own the house with your partner, the Charging Order is only made against your share of the equity – your partner’s share will not be affected by it.
The date of the CCJ is important. If it was before October 2012, then the creditor can only apply for a Charging Order if you fail to make the CCJ payments that the court has set. In October 2012 the law changed so a creditor can apply for a Charging Order even if you are still making the monthly payments.
What you need to do It is not automatic that a Charging Order will be granted – you can defend this by arguing that it would be unfair to you, to other people that live in your house, to the joint owner of your house or to your other creditors. You can also ask the court to add conditions – for example that the house cannot be sold until your children are over 18 say. See this National Debtline factsheet for more information.
Step 3 – Order For Sale
An Order For Sale is a court order which forces you to sell your property – the creditor will then be paid back because they have a Charge over the property, see above. If you don’t pay the debt or leave the property within 28 days, your creditor can apply for a warrant of possession to force you to leave the property.
An Order for Sale will only be granted if there is already a Charging Order that has been made final and if the debt is more than £1,000. Importantly, if the CCJ was applied for after October 2012, the Order for Sale will not be granted if you are up to date with the CCJ payments.
What you need to do As with a Charging Order, you can defend an application for an Order For Sale on various grounds. It is worth doing this even if you tried and failed to prevent a Charging Order on similar grounds – the judge may well decide that that the Order For Sale is unfair to someone else as they would lose their home. You can also make an offer of monthly payments at this stage and ask the court to suspend the Order so it won’t apply if you make the payments. See this National Debtline factsheet for more details.
How often does this happen?
When I wrote above that there are “three legal stages a creditor has to go through” you might have thought that creditors will aim to rush through the stages to get to stage three as fast as possible. This isn’t correct. Creditors don’t want to go to court, let alone go through three different applications – it costs them time, money and at any stage their court application may be refused, so it’s risky. Creditors would much prefer to find an acceptable repayment solution and not bother with any of this court action!
Look at these statistics for England and Wales in 2013:
CCJs 665,988 Charging Orders 47,769 Orders for Sale 222.
So out of every 100 CCJs only 7 go on to get a Charging Order. And the proportion of Charging Orders that then end up with an Order For Sale is tiny.
When the law changed in 2012, so that a creditor could get a Charging Order even if the debtor was making the CCJ payments every month, there were concerns that this would lead to a lot more creditors trying to use this as a means of debt enforcement. In practice this hasn’t happened, as this graph of charging orders shows – they have fallen since 2010 and leveled out after 2012, not increased.
This isn’t the full picture though. The fact that a creditor is legally able to get a Charging Order or could apply for an Order for Sale can be used to scare someone in debt into paying more than they can afford to this creditor. Just knowing the statistics may not really put your mind at risk because you want to know what is going to happen to your debts and your house.
Ways to keep your house safe
If you do all of the following, your house is much less likely to be at risk.
First you need to look at your whole debt situation. If a debt collector is threatening to go to court for a CCJ or you have just received court papers about a charging order it’s natural to want to focus on this immediate threat. But unless this is your only debt, this is a mistake. If you offer more than you can afford to this debt, then you could get CCJs for other credit cards or loans, or you could get into arrears with council tax or even the Revenue if you are self-employed and end up with bailiffs or being made bankrupt.
So, make a list of all your debts and get a realistic budget that you can live on for years, not a few months. And then use that to look at all your options, see A Road Map of Debt Solutions- What is your best route? If that says that you need a Debt Management Plan, then talk to StepChange about setting one up. This isn’t avoiding your problem debt, it means you can explain to the judge that you are treating all your creditors fairly in a DMP, so why should this creditor be allowed to get preference through a Charging Order?
Also step back and think about whether selling your house might actually be a good way forward… is your mortgage too expensive, is the house the right size and in the right place?
Second talk to your creditor and explain your situation. People often want to know if they “have” to give their creditor details about their income, expenditure, health etc. These can feel very personal, but basically you are more likely to reach an agreement with your creditor on a monthly payment that you can afford and they will find acceptable if you do give them this sort of information . And reaching an agreement is the key to your creditor deciding not to take you to court.
Third, if your creditor goes go to court, respond fast, do not ignore it. As the “what you need to do” sections above show, there are ways of contesting these applications but you have to do this. If you do nothing, the creditor will get what they are applying for.
Last but most importantly, get help! National Debtline doesn’t just have a great set of factsheets, they can also give advice to individuals about their specific cases. Unless you are completely confident in what you are doing, give them a ring on 0808 808 4000 and talk things through with them.