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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:

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Why a 0% credit card could mean 100% trouble

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Comments (17)

  • mrs weatherley
    Love rating 30
    mrs weatherley said

    Amazing isn't it the powers handed quietly to the banks while the people bail them out of any mess they get themselves into........

    Report on 01 October 2012  |  Love thisLove  5 loves
  • sheff-spud
    Love rating 2
    sheff-spud said

    With the change in the law perhaps the same "your home may be at risk..." warning should be made clear on adverts and application forms for 'unsecured' debts

    Report on 01 October 2012  |  Love thisLove  1 love
  • Jake61
    Love rating 2
    Jake61 said

    This could well be an own goal by the financial sector. It will make people think hard before taking out any form of credit. This has made it easier for the financial sector to get their money back even though unforeseen circumstances can lead to some people losing the ability to repay debts. Of course, another thing about the change is that it will open the door fully to some Debt Collection Agencies to put real pressure on those finding it hard or even impossible to keep up payments due to losing employment. This country really is biased towards the financial sector.

    Report on 01 October 2012  |  Love thisLove  0 loves
  • Mike10613
    Love rating 600
    Mike10613 said

    With more people losing their homes and social housing being reduced there will be more homelessness. Will we have more people sleeping rough under bridges or will the government bring back the workhouse? Champagne and strawberries for Cameron and gruel for everyone else.

    Report on 01 October 2012  |  Love thisLove  1 love
  • justin case
    Love rating 2
    justin case said

    I think it's disturbing that I can't find much info on this anywhere, seems to be being brought in very quietly.

    Well done to lovemoney for making me aware of this!

    Report on 01 October 2012  |  Love thisLove  1 love
  • easygoing
    Love rating 157
    easygoing said

    Quite right Mike. Cameron uses Dickens as policy reference guide. There are a lot of younger voters who cry "I didn't know it would be like this under the Tories"

    Some of us are older and wiser.

    Report on 01 October 2012  |  Love thisLove  0 loves
  • justin case
    Love rating 2
    justin case said

    Also, when the article says "As a result, your home could be sold." Is this saying that now charging orders give the creditor automatic rights to force a sale, or do they still have to go back to court to get the power to enforce sale of the property?

    Report on 01 October 2012  |  Love thisLove  0 loves
  • sodit
    Love rating 129
    sodit said

    easygoing, this law was enacted in 2007... so although you're right about the Dickensian bit, you're wrong about the guilty party... it's Blair and Brown who are trying to beggar the working classes... not unlike the way they let in millions of foreigners to undercut the working man's wage.

    Report on 01 October 2012  |  Love thisLove  4 loves
  • sodit
    Love rating 129
    sodit said

    Mike10613,

    the article says that this is the result of "Section 93 of The Tribunal, Courts and Enforcement Act 2007".

    Who was in government in 2007? I think that'll tell you who's really out to punish the working class for being poor.

    Report on 01 October 2012  |  Love thisLove  3 loves
  • Aitken B
    Love rating 125
    Aitken B said

    Ok. At a quick reading of the piece it appears that the section only applies to someone who already has an unfulfilled CCJ against them. It is effectively a short way of piggy-backing another defaulted debt onto an existing CCJ (made after 1st October 2012).

    One problem remains. Obtaining a CCJ does not guarantee payment and this "charging order" will have the same difficulty.

    Really not much has changed but it is interesting to note, as others have pointed out, the timing of the enactments, by whom they were enacted and who they benefit.

    Not that I think that Labour (New or otherwise) are a bunch of two faced hypocrites who love living the high life spending other people's money until it is all, as Liam Byrne confirmed, gone. Perish the thought.

    Report on 01 October 2012  |  Love thisLove  1 love
  • MK22
    Love rating 149
    MK22 said

    Presumably since the Tories love the poor so much, this new regulation will quietly disappear along with all the other red tape they are getting rid of. Like the right to keep your job, the right to a safe workplace, the right to decent housing, a decent NHS, banking, etc, etc. Though I understand that right to be poor and downtrodden will be retained.

    Report on 01 October 2012  |  Love thisLove  0 loves
  • sodit
    Love rating 129
    sodit said

    On your first point, I doubt if it will be, MK22, because I suspect that the Tory toffs running the current government hold the plebs in about as much contempt as the previous lot did.

    On your last point, I think you are right, only they probably won't promote that condition as diligently as the last lot did.

    Report on 01 October 2012  |  Love thisLove  0 loves
  • CuNNaXXa
    Love rating 373
    CuNNaXXa said

    So, it becomes possible for an unsecured debt to become a secured debt, without the benefit of the more favourable interest rates that secured debts attract.

    Sounds like a lose-lose situation to me. Pay a sky high APR, and if you default, you could lose your home to Wonga. Well, that will teach you to borrow £500. They've now sold you house for £300,000 to pay their £500 plus interest back.

    (Said with tongue in cheek).

    On a serious note, it seems that as we progress into the 22nd century, our individual rights are diminishing until eventually, we will all become property of corporations.

    Report on 01 October 2012  |  Love thisLove  1 love
  • Aitken B
    Love rating 125
    Aitken B said

    Well MK22, yes and no.

    Yes this regulation should disappear

    No you have no tight to keep your job – you have to deliver what you are paid for for that. This, of course, does not apply to MPs and most public employees.

    Yes you have a right to a safe workplace provided you play your active part in keeping it safe although the present regime seeks to put ALL the responsibilities on the employer.

    No - you have a right only to the housing you pay for.

    Yes you have a right to a decent NHS provided you contribute to its cost

    Yes you have a right to expect that banking, or any other service provided to you for a price, is honest.

    So far as the provision of publicly provided services are concerned, Housing NHS etc, they are provided to people who, through no fault of their own, are not able to contribute to their cost.

    CuNNaXXa said

    So, it becomes possible for an unsecured debt to become a secured debt . . .

    No not really – if my understanding is correct.

    There is nothing stopping an unsecured creditor making a claim in the County Court and obtaining a CCJ against the debtor. This does not make it into a secured debt although I guess the difference is somewhat esoteric.

    All this procedure does is to allow, through a simplified process, an unsecured debt to be piggy-backed onto an existing CCJ. If there is no pre-existing CCJ the process cannot be used.

    I do however entirely share your concerns about ending up as “corporate property”. Large Corporations have altogether too much power and influence.

    Report on 01 October 2012  |  Love thisLove  0 loves
  • charles125
    Love rating 52
    charles125 said

    Very bad news indeed for those with high credit card debts or other debts even if on a voluntary payment plan. Previously a CCJ would not have further benefited the card companies or bank's position.

    But two big caveats. Firstly, if the card debt to an individual company is only a low percentage of the property value, a charging order may be declined or rejected on appeal as not being appropriate for the amount of debt involved. Secondly a charging order is not in itself a forceful entity in pressing for the sale of a property. It normally just means if a house is ever eventually sold, the loan company can at that point reclaim any outstanding finance.

    Forcing a house sale under a charging order requires another and much more serious legal step which is usually only enforced by a judge where the credit outstanding is a very substantial portion of the house value. This usually means that where a spouse or partner jointly owns the home and would be made homeless by a house sale, a forced sale is more unlikely, but it can still happen if the debt is a very large amount of one of the joint owners portion of the house's value. Also where family would be forced to endure undue hardship from the charging order being used to try to force a house sale, it is again usually unlikely to be put into effect. But this cannot be taken for granted when debts are very high compared to the house or individual's ownership stake. Children in the family below the age of 18 will again make it more unlikely that a judge will refuse to allow a forced sale. But there are no guarantees, it all comes down to individual circumstances and the day's judgement by the judge that particular day.

    Having said that, I don't think anyone needs to lose any sleep over an individual card or bank default on £10,000 being charged to a property while being forced to pay an 'affordable' voluntary token payment plan supported by income and budget figures. Against the value of a property, £10,000 is not a large proportion of the value of most properties and it would a most wretchedly unkind judge who would act to allow a forced sale on this amount of charging.

    I'd certainly be more worried about a charging order to one company of £25,000 in some parts of the country, but as property prices and values rise elsewhere in the country it would take a correspondingly much larger loan deficit before repossession might become likely.

    But I am worried that the 'security' of charging a presently unsecured debt might lead to a very large increase in CCJs applied for, particularly amongst those who are doing their absolute best and while not meeting contractual minimum payments are never-the-less paying absolutely as much as they can afford each month.

    Card companies and banks might lose out in a big way if they do implement CCJs upon these customers followed by charging orders, as such customers might well in advance as well as in in rightful just retaliation then adjust their budgets so they can only 'afford' £1 per month per debt, and that being more than their budget/income allows. This would at least then prevent a CCJ forcing higher than £1 -£2 a month CCJ judgements.

    It remains to be seen if card companies and banks do in fact implement far more CCJs.

    The biggest question of all and the most easily answered is will banks and card companies cut interest rates given it is much easier to secure these debts? The answer is a decided no, interest rates on unsecured loans will remain very high and continue astonishingly high on credit card loans.

    Report on 02 October 2012  |  Love thisLove  0 loves
  • charles125
    Love rating 52
    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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