What are the options for a creditor who has a judgement order against a debtor, who is either unwilling or unable to satisfy a debt? A creditor may seek to explore several enforcement methods to recover the debt. This article focuses on the procedure and considerations for a creditor obtaining a charging order.
A charging order effectively creates an equitable interest in favour of a creditor on a property that is owned by the debtor. This interest will be registered as a charge at the Land Registry. This means the debtor will be unable to sell or dispose of their interest in the property, until the creditor’s debt has been fully repaid. Generally, a creditor will seek a charging order with a view of obtaining an order for sale to realise the debt.
Obtaining a charging order
A creditor’s application for a charging order must satisfy the courts that debtor owns or has an interest in the property. The creditor will commence by making an application for an interim charging order.
An interim charging order is generally made without a hearing. The debtor may challenge the interim charging order within 14 days of service, provided they are able to demonstrate a legal reason why the charging order should not be granted.
If the debtor fails to present a compelling reason to the courts, then an interim charging order will be awarded. At this stage, a creditor may proceed to register a restriction at the Land Registry, which will prevent the debtor from disposing of their interest in the property without the creditor’s consent.
Once a debtor has been served with a notice of an interim charging order, they will have an additional 28 days to object to a final charging order. If an objection is raised by the debtor and the courts accept that there may be some reasonable grounds to challenge the final charging order, a hearing date will be set.
It should be noted that even if a debtor is unable to successfully challenge a final charging order, the courts may still impose conditions, such as suspension of enforcement. The courts will only apply such conditions under certain circumstances, for example if the property is the matrimonial home and there is a minor residing at the property.
If a final charging order is granted without any conditions, the creditor may proceed to obtain an order for sale. If the debtor fails to comply with the order, the creditor may apply for a warrant for possession and thereafter appoint bailiffs to evict the debtor from the property. Once the property is sold, the creditor will recover the full amount of debt, in addition to any interest and costs.
Considerations for a creditor
As with any form of debt recovery, a creditor should always carry out sufficient searches on the debtor’s assets and liabilities prior to applying for a charging order.
A creditor should consider any existing charges on the property. Even if a creditor successfully obtains a charging order, if there is insufficient equity in the property it is unlikely that the creditor will recover the debt.
It is also possible for a debtor to challenge a charging order on the basis that there is insufficient equity in the property.
There are numerous defences that a debtor may rely on which could prevent a charging order from being granted. A creditor should explore all potential options, prior to making an application for a charging order.
If you would like to discuss charging orders in further detail, please contact one of our specialist solicitors who will be happy to advise and assist you.