How To Enforce Debt By A Charging Order? A Basic Guide
As touched upon previously in our guides here, in many successful debt claims, a debtor’s inability or unwillingness to satisfy the debt judgments often forces creditors to take subsequent legal steps to enforce the judgment. Among others, obtaining a security charge on the debtor’s property and subsequently securing an order for a sale may be appropriate action for some creditors where the debtor has an interest in residential or commercial premises. In this article, we will outline the main steps that ought to be taken by creditors seeking to enforce a debt in their favour through this legal route and offer some practical recommendations.
What is a Charging Order?
A charging order is a type of legal security imposed on a property owned by a debtor which will prevent the debtor from disposing of this asset. It is a requirement before you can obtain a charging order that you have already obtained a judgment in a court which can now be enforced.
What steps should I take to enforce debt through a charging order?
1. Application for an Interim Charging Order
Once you have obtained a court judgment against the debtor, the deadline for satisfying the debt has passed and no payment has been made or the payment was insufficient and the debtor is not covered by a debt relief memorandum, you may now apply for an interim charging order. The application can be made at any time after that, however, it is noteworthy that in late applications the court may choose not to award interest on the sum due.
To apply, you must complete the court form N379, which can be found online. Notably, the form will require that you provide details of any other creditors against this debtor, if known, and details and addresses of any other persons on whom the interim order ought to be served. It will typically include others who have legal interests in the same property, such as co-owners, debtor’s spouse or civil partner or other creditors such as mortgagees. As a result, it will be necessary to obtain updated Official Copy Entries (OCE) which will contain the required details and enclose them to the application. OCEs are available at the Land Registry’s website and can be requested online.
Completed applications are to be made to the County Court or the High Court. If the underlying judgment giving you the right to enforce the debt was made by a County Court or the debt is in the sum of £5,000 or less, then the application should follow to the County Court. Notably, since 6 April 2016, all applications for charging orders to County Courts must be made to the County Court Money Claims Centre in Salford (CCMCC). You will also have to pay the appropriate court fee which can be found online.
Applications are initially dealt with without notice to the debtor and without a hearing by a court officer or a judge. If you are successful, the court will issue a so-called ‘unless notice’, meaning that unless the debtor objects to the interim charging order within the prescribed time, the court will proceed with making the final charging order.
If you are granted an interim charging order, there are further necessary steps to be completed before the final charging order hearing. You will also need to protect your position by registering your interest in the debtor’s land at the Land Registry by notice or restriction and paying the appropriate fee. This will now prevent the debtor from dealing with the property without due notice being provided to you.
If the debtor objects to the interim charging order, they will have to file and serve written evidence with grounds for objection within prescribed time limits and in advance of the final charging order being made.
2. Obtaining a Final Charging Order
Having secured an interim charging order against the debtor’s property, the next step will be obtaining a final charging order in your favour. If your matter is with a court other than CCMC, a hearing will be listed at which the creditor and any other persons with legal rights to the property will have an opportunity to object. In CCMCC cases, if no objections have been made, the judge will consider the application without a hearing.
Having considered representations from all parties, the court may make a final charging order in your favour, discharge the interim charging order and dismiss your application or make any orders it sees appropriate to decide the issues between the parties.
Useful information that can be bought to the court’s attention at the hearing include:
- A summary and details of the original claim against the debtor;
- An explanation that the debt has not been satisfied despite the debtor being given ample opportunity to do so;
- An explanation that you have applied for in interim charging order and duly complied with the service and registration requirements;
- An explanation that, therefore, it is now appropriate for the court to make the final charging order;
- The likely prejudice that may be suffered by you but not the debtor.
If the final charging order is made in your favour, the court will serve it on the debtor and all other concerned parties. If it is not made final, you will be required to update the Land Registry accordingly.
You would also be awarded any court fees and limited legal fees (if incurred) as well as continuing interest.
Once a charging order is obtained and registered with the Land Registry, the creditor will have a choice between waiting until the property eventually gets sold or applying for an order for a sale to liquidate the asset as soon as possible. Please see Part 2 of our guide on how to obtain an order for a sale.
Please note that each case will differ on its facts and the above guide must not be construed as legal advice. If you would like to obtain legal advice specifically tailored to your matter, our dispute resolution solicitors can be contacted on 0808 271 9413.