What Are Charging Orders and How To Use Them?

When dealing with debt recovery, one powerful tool creditors can utilize is a charging order. But what exactly is a charging order, and how does it work? In this blog, we’ll explore the ins and outs of charging orders and how they can be used to secure a debt against a debtor’s property.

Understanding Charging Orders

A charging order is a legal procedure that a creditor can use to secure a debt by placing a charge on the debtor’s property. Where a judgment debtor owns property such as a house, land or shares, the judgment creditor can apply to the court to have a charge placed over that property. The effect of the charging order procedure is that when the house, land or shares are sold, the judgment creditor is paid out in priority to other creditors (except those already registered) from the proceeds of sale.

The Legal Process

The process of obtaining a charging order involves several steps |

1. Obtaining a Judgment |

You can’t just dive into a charging order application. First of all, you have to obtain a judgment against your debtor. The judgment confirms that the debtor owes the debt and is legally obligated to pay it.

2. Applying for an Interim Charging Order |

With the judgment in place, you can start the application for an interim charging order, which is the initial step in the process to secure the charge against the property. The application is made to the court, and if granted, an interim charging order is issued. When the application relates to land, a search of HM Land Registry will confirm what if any charges are already in place against the property. An online valuation can be done to assess if there is going to be enough equity in the value of the property to pay the charges such as a first mortgage and or other mortgages, ahead of the charge obtained through the Charging Order application.

3. Final Charging Order Hearing |

After the interim charging order is issued, a court hearing is scheduled to decide whether to make the order final. During this hearing, the debtor has the opportunity to object to the charging order. If the court is satisfied with the creditor’s claim, a final charging order is issued. It is important that you and your legal representatives register the interim charging order at HM Land Registry so your Judgment Debtor cannot sell the property free of the charge you have already obtained.

4. Registering the Charging Order |

Once the final charging order is granted, it must be registered with the Land Registry. This registration makes the charge official and ensures that it is recorded against the property.

5. Enforcing the Charging Order |

Once the charging order is obtained, Shergroup Legal can assist with the enforcement of the final charging order by making the necessary application for an order for sale. This step allows the creditor to take further action to recover the debt if the debtor still does not pay. An order for sale enables the creditor to force the sale of the property, ensuring that the debt is paid from the proceeds.

Shergroup’s Dual Approach

At Shergroup UK, our approach to using charging orders is to enforce the court’s judgment both with a Writ of Control through our enforcement team and, where there is potential equity in a property, through a concurrent application for a charging order. This dual approach ensures that we maximize the chances of debt recovery by leveraging the debtor’s assets effectively. By assessing the debtor’s situation comprehensively, we can determine the best course of action to secure and recover the debt.

Charging Orders on Shares and Securities

In addition to real property, charging orders can also be used to enforce payment where a judgment debtor holds shares or securities. By placing a charge on these financial assets, creditors can secure their debt against the value of the shares or securities. This means that when the shares are sold or dividends are paid, the creditor is entitled to receive payment from these proceeds. This provides an additional layer of security for creditors, ensuring that valuable financial assets are also considered in the debt recovery process.

Benefits for Creditors

Charging orders provide several benefits for creditors |

Security for the Debt |

A charging order secures the debt against the debtor’s property, providing assurance that the debt will eventually be paid, either through voluntary payment by the debtor or through the sale of the property.

Priority in Payment |

When the property is sold, creditors with a charging order are given priority over other unsecured creditors. This increases the likelihood of recovering the debt in full.

Deterrence |

The existence of a charging order can encourage debtors to settle their debts more quickly to avoid complications with their property.

Considerations for Debtors

For debtors, a charging order represents a serious step in the debt recovery process. It’s important for debtors to understand that |

Property Impact |

A charging order can affect their ability to sell or refinance their property, as any sale would require settling the charge first.

Credit Implications |

As many people now realize a charging order will have a negative impact on a person’s credit score which in turn will make it more difficult for the Judgment Debtor to use credit in the future. The CCJ or High Court Judgment will stay on the Register of Court Judgments for 6 years even if it is marked as satisfied, unless it is paid within the first month of the judgment being entered by the Court.

Summing Up

Charging orders are a valuable tool in debt recovery, providing creditors with a secure method to recover outstanding debts. For debtors, they represent a significant step that can impact their property and credit status. At Shergroup UK, we are experienced in navigating the complexities of charging orders and can assist both creditors and debtors in understanding their rights and responsibilities.

If you have questions about charging orders or need assistance with debt recovery, contact Shergroup UK today. Our expert team is here to provide the guidance and support you need.

How-To FAQs

Q1: What is a charging order in debt recovery?
A1: A charging order is a legal method that allows creditors to secure unpaid debt against a debtor’s property, shares, or land. It ensures the creditor is repaid from the proceeds when the asset is sold.

Q2: When can a creditor apply for a charging order?
A2: A creditor can apply for a charging order after obtaining a County Court Judgment (CCJ) or High Court Judgment confirming the debtor owes the debt.

Q3: What is the difference between an interim and final charging order?
A3: An interim charging order is temporary and issued before a court hearing. If approved at the hearing, it becomes a final charging order, officially securing the debt against the property.

Q4: How do you apply for a charging order?
A4: First, obtain a judgment against the debtor. Then apply to the court for an interim charging order. After a hearing, if granted, register the final charging order with HM Land Registry.

Q5: Can a charging order be placed on assets other than property?
A5: Yes. Charging orders can also apply to financial assets such as shares or securities, giving creditors a claim over proceeds from sales or dividends.

Q6: What happens after a charging order is registered?
A6: Once registered with the Land Registry, the debt is officially secured against the property, preventing the debtor from selling it without clearing the debt.

Q7: Can a creditor enforce a charging order to sell the property?
A7: Yes. If the debtor still doesn’t pay, creditors can apply for an order for sale to force the sale of the property and recover the debt from the proceeds.

Q8: How does a charging order affect debtors?
A8: It can affect a debtor’s ability to sell, refinance, or borrow money. It may also negatively impact their credit score for up to six years.

Q9: What are the benefits of charging orders for creditors?
A9: Charging orders secure the debt, provide payment priority over unsecured creditors, and motivate debtors to pay to avoid property complications.

Q10: How can Shergroup UK assist with charging orders?
A10: Shergroup UK provides end-to-end legal support — from judgment to enforcement — including applying for charging orders, registering them, and enforcing payment through orders for sale.