While mortgage debts and other secured debts against your home could lead to a forced sale, unsecured creditors can also apply for charging orders against your property.
It is possible for creditors to force the sale of your home. You would first have a CCJ against you, and then a Charging Order, which would secure the debt against your home. The creditor could then request an Order of Sale.
The charging orders would not necessarily force the sale of your house but would restrict your ability to profit from any sale.
It will be no surprise to learn that mortgage debts and other finance secured against your property could lead to a forced sale. However, many people may not be aware of the powers of unsecured creditors.
We are talking about credit cards, personal loans and other similar finance which is unsecured, which means there are no assets directly related to the agreement.
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There is a general assumption that mortgage companies will repossess your home as soon as you begin to fall behind with mortgage payments. This is wrong. Repossession is a last resort for any mortgage lender, and you would need to be in serious arrears for this to be a consideration.
It is in the best interest of the mortgage holder and the mortgage company to find some middle ground where possible. This may involve a refinancing of your mortgage, extension of the term or maybe even a short-term mortgage holiday to let you get back on your feet.
That said if you allow your mortgage arrears to build-up then, unfortunately, your mortgage company may have no option but to seek repossession.
It seems a little bizarre to suggest that unsecured lenders can go through the courts to secure their debt against your home. They can. Only after a CCJ has been upheld in the courts can an unsecured lender apply for what is known as a Charging Order.
This effectively switches the basis of the debt from unsecured to secured, against your home. It is worth noting that unsecured creditors can apply for a CCJ and a Charging Order at the same time. However, the CCJ application would need to be successful in order for any Charging Order to be put in place.
A Charging Order does not force you to sell your home to pay off a creditor, but it does place your creditor second in line behind your mortgage company as and when your property is sold.
So, if for example, you were also behind with your mortgage payments, your home was repossessed and sold, the mortgage company would be repaid first and then the creditor with the Charging Order.
In theory, an unsecured creditor could apply for a Charging Order and then an Order for Sale which would effectively force you to sell your property, repay the mortgage company and then the unsecured creditor. While this is the next stage on from a Charging Order, the debt would need to be more than £1000, and in reality, it is very rare.
There are few statistics regarding Charging Orders and Orders for Sale. However, those released by the Ministry of Justice back in 2013 suggest that the number of charging orders issued was just 7% of the number of CCJs with Orders for Sale accounting for less than 0.5% of Charging Orders.
If we put this into perspective, in 2016, there were 912,000 CCJs so using the same split; this would suggest around 64,000 Charging Orders and less than 300 Orders for Sale. These figures are by no means set in stone, but it does give you an idea of how the system works. It looks as though Charging Orders tend to prompt debtors and creditors to find a suitable arrangement.
While your home will be recognised as an asset and could potentially be sold to repay your creditors, this is not as straightforward as many people assume. Upon bankruptcy, the legal ownership of your home would be transferred to a trustee to prevent a sale. However, unless you have equity in excess of £1000, it is unlikely that your home would be sold.
If possible, it is essential that you maintain your mortgage payments even if a bankruptcy order has been placed against you. If you fall behind with your mortgage payments then, as a secured creditor, your mortgage company could take action to repossess the property, force a sale and repay their debt.
The idea that you stop making any payments during bankruptcy is simply incorrect and dangerous.
While the UK government has introduced an array of protection for consumers, deep in the small print of the 2013 budget was a suggestion that HMRC will be making more use of Charging Orders in the future. It appears this type of action will be used to recover both personal and business tax arrears.
Whether HMRC would then move onto Orders for Sale is unclear, but the authorities look set to use various tools to assist in the recovery of outstanding debts.
The simple answer is, why would they? If after repayment of your mortgage and other secured debts there is no equity left in your property, then there wouldn’t be any funds available to repay additional creditors. As a consequence, there would be no reason to push through a forced sale of your property.
However, your creditors could still use a Charging Order to stop you from selling, refinancing or profiting from your home in any way.
The idea that your home will be repossessed as soon as you begin falling behind with mortgage payments, or unsecured creditors, is a myth. There are ways and means by which creditors can control the potential sale of your home, but very few will go through with a forced sale.
However, during these difficult financial times, it is important to honour your mortgage payments where possible. If unable to maintain your mortgage payments, then it is advisable to look at alternative arrangements.
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