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As CCJs surge should I be worried about a credit card debt if I’m a house owner? Err, yes!

Monday, 9th February 2015

With the spike in the numbers of borrowers receiving a County Court Judgement (CCJ), 698,166 in England and Wales in 2014, 30 per cent more than in 2013 and the highest number in any year since 2009, consumers need to be aware that any unsecured debt such as a credit or store card debt, a personal or payday loan, an overdraft or even a catalogue debt, can, if you own your own home, end up as a secured debt, just like your mortgage.

Fall behind with any of the above debts and the debt including interest is £1,000 or more then under new rules issued on 1 October 2012 the unsecured lender can easily apply to the court to put these debts on your house, a bit like a second mortgage and, at the same time, apply for a County Court Judgement (CCJ).

What the new rules mean

These new rules mean that if you then miss any payments under the CCJ the creditor can ask the court for an “order of sale” to force the sale of your home. Previously creditors could apply for a charging order only after a CCJ had been issued which then allowed the debtor to defend such action.

In 2013 there were 47,769 final charging orders in England and Wales of which 222 orders were for sale I am still trying to establish the figures for 2014.

What is a charging order?

A charging order is a court order that places a 'charge' on a debtor's property, turning unpaid, unsecured judgment debts into secured debts. This means that once any prior ranking charges on the property have been settled, the debt must be paid back out of the available proceeds of sale when the debtor sells the property.

To get a charging order the creditor will first have to get a county court judgment (CCJ) on the debt through a court. Under the new rules the creditor can now ask for the charging order at the same time of judgement.

CCJs granted before 1 October 2012

CCJs granted before this date will be subject to the old procedure, where charging orders are only possible after payments have been missed on a CCJ. As long as you keep up with your payments your creditor won’t be able to apply for a charging order, thereby preventing the debt ever being attached to your house.

Where is the warning that a payday loan or credit card debt can be put on your home?

Is there such a warning? When you apply for a mortgage you are told: Your home may be repossessed if you do not keep up repayments on your mortgage. I ask why this is not made clear to the credit card or payday loan borrower.  Shouldn’t new borrowers be told about the possible risk in the same way?

Cash-poor but asset-rich

For many creditors this change in the law is most welcome as it closes a loophole often exploited by debtors that are ‘cash-poor’ in terms of income but ‘asset-rich’ in terms of owning a property with little or no mortgage. Previously a debtor could sell their home with no legal obligation to use any surplus proceeds of that sale to pay off any judgement debts.

Is this a case of mis-selling credit?

How many homeowners really understand that the debts they are racking up on credit or store cards, payday loans, catalogues or bank loans can actually end up being put on their home? I bet it’s very few indeed!  

So it’s no surprise that creditors are applying for a CCJ and to be honest I can’t blame them. However I strongly feel that borrowers are daily being misled when they take on a so-called unsecured debt.

If the debt is unsecured then it must stay unsecured. Home owners are being blatantly discriminated against if they fall behind with payments because if you do not own your home then there is no risk of a charging order. This risk needs to be made abundantly clear at the point of sale and evident on every agreement. In my view this is a huge case of consumers being deceived into thinking their debt is unsecured, when it can end up being otherwise.

Where can I get free debt advice and debt solutions with no fees?

You can click on the following link where you will get access to organisations that include the debt charities.

Take me to free debt advice agencies.

You can follow Mike on twitter by using @debtwizard




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