Charging Orders: When to Use Them and How

TL;DR

A charging order secures a judgment debt against a debtor’s property, turning an unsecured claim into a secured one. Creditors often use them after obtaining a CCJ. While they provide long-term security, they don’t guarantee immediate payment and can be challenged on proportionality or compliance grounds.

When a debt remains unpaid, a creditor may need to consider legal enforcement options. One of the most effective ways to secure repayment is through a charging order. This legal mechanism enables a creditor to secure a debt against the debtor’s property, thereby converting an unsecured debt into one that must be paid before the property can be sold or refinanced.

Charging orders are not suitable in every situation, but when used correctly, they can provide creditors with long-term protection and increase the likelihood of recovery. This article explains what charging orders are, when they can be used, how the process works, and the strategic issues both creditors and debtors should understand.

What Is a Charging Order?

A charging order is a court order that secures an existing debt against a debtor’s asset, usually real property such as a house or flat. It effectively places the creditor in the position of a secured creditor, meaning the debt must be cleared from the proceeds if the property is sold or remortgaged.

There are two stages to the process:

• Interim charging order: Initially granted on application by the creditor, temporarily securing the debt until a hearing can be held.
• Final charging order: Made after the hearing, creating a permanent charge over the property unless the debt is repaid or the court dismisses the application.
  

When Can a Charging Order Be Used?

A creditor cannot simply apply for a charging order without first obtaining a County Court Judgment (CCJ) or High Court Judgment. The CCJ confirms the debtor legally owes the money.

Situations where a charging order is typically considered include:

• Persistent non-payment of a loan or credit agreement.
• Business debts where a debtor refuses or fails to pay.
• Unpaid damages following litigation.

However, there are limitations. The debtor must have an interest in property or assets with sufficient equity. If the property is jointly owned, the charging order may only attach to the debtor’s share, which complicates enforcement.

The Process of Applying for a Charging Order

Application for a charging order follows a clear legal procedure:

Step 1: Obtain a Judgment

The creditor must first obtain a CCJ for the outstanding debt. The court will usually allow repayment by instalments or in full. If the debtor fails to comply, the creditor can consider a charging order.

Step 2: Interim Charging Order

The creditor applies to the court using the appropriate forms. If the paperwork is in order, the court typically grants an interim charging order without a hearing. This temporarily secures the debt against the property and is registered with the Land Registry.

Step 3: Final Charging Order Hearing

A hearing is then listed where the debtor may raise objections. The court will consider:

• Whether the debt remains outstanding.
• Whether instalment orders are being followed.
• The proportionality of granting a final order.

If satisfied, the court grants a final charging order, securing the debt until repayment or sale of the property.

Once granted, the charging order is registered with the Land Registry. This registration ensures a public record of the charge, which must be acknowledged by anyone who deals with the property title thereafter.

Get to know about: CCJ Enforcement Options: Which Method Works Fastest?

Effects of a Charging Order

A charging order does not mean the property is immediately sold. Instead, it secures the creditor’s interest.

Key effects include:

• The debtor cannot sell, transfer, or remortgage the property without clearing the debt.
• The creditor joins the list of secured creditors, meaning their debt is prioritised when the property is sold.
• For joint ownership, the charge attaches only to the debtor’s share, which can reduce effectiveness if the other owner objects.
  

While it does not guarantee immediate repayment, it provides long-term security for the creditor.

Enforcement of Charging Orders

In some cases, creditors may seek further enforcement through an Order for Sale. This is a separate application requesting that the court order the sale of the property so that the debt can be repaid.

Courts are cautious when dealing with residential properties, especially when family members or children reside in the premises. An order for sale is more likely where:

• The debt is large.
• The debtor has made no attempt to pay.
• There are no strong hardship grounds raised by the debtor.

For smaller debts, courts are reluctant to force sales, preferring the creditor to wait until the property is voluntarily sold.

Defences Against Charging Orders

Debtors can oppose a final charging order in certain circumstances, for example:

• The debt has been paid or satisfied.
• An instalment order is in place and being followed.
• Hardship or proportionality concerns, such as the risk of homelessness for family members.
• Errors in the creditor’s paperwork or procedural flaws.

While challenging a charging order can be difficult, debtors should always seek legal advice before the final hearing.

Strategic Considerations for Creditors

Charging orders are powerful tools, but creditors should weigh them carefully.

Advantages

• Secures an unsecured debt against valuable property.
• Provides long-term security, as the order remains until the property is sold.
• Can deter debtors from further default.

Disadvantages

• Does not guarantee immediate repayment.
• Enforcement through an order for sale can be costly and uncertain.
• If there is little or no equity, the charging order may be of limited value.

Creditors should also consider alternative enforcement methods such as attachment of earnings orders (deducting from wages) or third-party debt orders (freezing bank accounts).

Strategic Considerations for Debtors

Debtors facing a charging order should act quickly. Options include:

• Paying the judgment debt in full before the final hearing to prevent the order.
• Proposing affordable instalments and showing evidence of compliance.
• Challenging proportionality if the debt is small compared with the property value.
• Seeking professional advice to negotiate or challenge the application.

Failure to engage with the process can result in losing control of the outcome.

You should read: Unpaid Invoices: From LBC to CCJ and Enforcement

Let Us Help You

Enforcement of debts can be complex, and mistakes risk wasting time and costs. At Civil Litigation Lawyers, we assist creditors in securing debts with charging orders and guide debtors in defending against unfair applications. Contact us today to discuss your options and get expert legal support tailored to your situation.