Threshold lowered for charging orders

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Creditors can now secure a debtor’s property against unsecured debts as low as £1,000 due to new regulations on charging orders which have come into effect.

The Charging Orders (Order for Sale: Financial Thresholds) Regulations 2013 came into effect on Friday 5 April, introducing a threshold on the enforcement method for the first time.

The threshold is for the court to grant an order for sale of a charging order, which can now be sought for debts of £1,000, as opposed to the higher threshold of £25,000 promised by the government in the Coalition Agreement in 2010.

The move has prompted criticism from debt charities over the government’s change of mind and the possibility that the low threshold could lead to a huge rise in charging orders.

“The government has reneged on its promise to keep the threshold at £25,000 and we do not believe there is sufficient justification for these measures,” said a spokesperson for StepChange Debt Charity.

“The likelihood is that we will see more charging orders and this will potentially create a situation in which other creditors take similar action, which in turn places undue stress onto financially vulnerable people.”

But justice minister Helen Grant told Parliament in January that placing a high threshold on charging orders would encourage creditors to initiate bankruptcies as an alternative.

She said more debtors tend to lose their home in bankruptcy than with charging orders, therefore encouraging bankruptcy was likely to produce a much more draconian outcome for debtors.

However, charging orders have proved controversial in the past.

In January this year, the Office of Fair Trading (OFT) imposed requirements on Royal Bank of Scotland plc (RBS) and National Westminster Bank plc (NatWest) over their use of charging orders to recover customer debts.

The OFT’s concerns included an apparent failure by the banks to consider customers’ financial circumstances.

The regulator added that the banks were not always taking account of customers’ efforts to repay debts before applying for charging orders.

Alliance and Leicester Personal Finance Limited, American Express Services Europe Limited, HFC Bank Limited and Welcome Financial Services Limited were the subject of separate sanctions by the OFT in 2010 over their use of charging orders.

Charging orders are granted by a court and places a ‘charge’ on a debtor’s property, turning unpaid, unsecured judgment debts into secured debts.

This means the debt must be paid back out of the proceeds of sale when the debtor sells the property.

A creditor which obtains a charging order can also apply to the court for the property to be sold sooner but this only happens in a minority of cases.


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