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New laws mean credit card debt can affect your mortgage

StepChange Debt Charity
by Lovemoney Staff StepChange Debt Charity on 26 September 2012  |  Comments 17 comments

From 1st October new legislation will come into force which will change how creditors can apply for charging orders.

New laws mean credit card debt can affect your mortgage

If you miss payments on a credit card, your creditors follow the normal debt collection process. It would take many steps, and many months, before an unsecured debt can be turned into a secured one, via a charging order.

However new legislation means that from 1st October many of these steps have been taken away, and that creditors will be able to apply for a charging order with much more ease.

On the back of this we expect to see a significant rise in the amount of charging orders being applied for by creditors looking to enforce unsecured debts.

How it works now

At the moment if you miss payments on a credit card or other unsecured debt your creditors need to issue a default notice first. If this proves unsuccessful one of the routes they can take to enforce payment is through a county court judgment (CCJ).

A person in debt would need to default on a CCJ before creditors could go further to secure the debt through a charging order (However, creditors can sometimes apply for a re-determination at court with a view to securing the debt based on the CCJ payment being too low).

A CCJ, despite what some people think, can be varied through the courts, so in cases where the CCJ payment becomes difficult to maintain we’d advise on varying the amount with the court’s agreement. This would stop further action being taken, such as the creditor applying for a charging order if the CCJ payment is broken.

How the new charging orders will work

However this whole process is about to change significantly for those with problem unsecured debt.

From 1st October onwards Section 93 of The Tribunal, Courts and Enforcement Act 2007 will allow a creditor to apply for a charging order against a client who has a county court judgment, even if they haven’t missed any payments due under the CCJ.

So essentially, when a court grants a CCJ it will be effectively handing the creditor the right to secure the debt against any property the person with the debt has, whether they stick to the terms of the CCJ or not. As a result, your home could be sold.

Clients can still defend against charging orders at the final charging order hearing and the court in question will have to consider the position of the client and the creditor.

These changes to law will mean that in many cases we’ll have to change our advice to our clients (although this something we often need to do to keep up with the ever-changing world of debt legislation).

How will this impact you?

This should impact the way we, as consumers, look at unsecured debt in the future. Any changes that mean unsecured debt can quickly, and in some cases easily, become secured may make homeowners think twice before taking out credit card debt or short-term loans. After all, it could lead to their home being sold from under them.

It’s worth noting again that this will only apply to CCJs granted after October 1st 2012. Creditors will not be able to take retrospective action on CCJs granted before this date.

If you’re worried about unsecured debt or need free help with debt management the first place to start is our online debt counselling service Debt Remedy.

More on debt:

Scammers turn to 'mis-sold IVA' letters

Budgeting was easier when we were paid weekly

Why a 0% credit card could mean 100% trouble

Bankruptcy: handing back the keys to your home

Losing your job isn’t the only cause of middle age debt

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Comments (17)

  • charles125
    Love rating 53
    charles125 said

    Two very brief counter arguments if you do need to appeal against a charging order that may apply to most people.

    If the charging order will favour one creditor over all of the others that you have payment arrangements in place with. (A very good reason to spread any card or other loans amongst as many other companies as possible, just make sure they don't belong to the same overall corporations!).

    If the creditor applying for the charging order hasn't listed all your other debts with other companies. (to try to get round the first point)

    :))))

    Report on 02 October 2012  |  Love thisLove  0 loves
  • Tonyea
    Love rating 0
    Tonyea said

    How would this affect me, who has unsecured debts and is living in a property through a Housing Association which has a 50/50 split part rent part mortgage. Having approached the housing association regarding equity release and been told that I would be unable secure a second charge against the property to clear any debts, would the companies who I owe these debts to be under the same constraints.

    Report on 08 October 2012  |  Love thisLove  0 loves

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