Since 2000 there has been a staggering 722% increase in the number of charging order applications and the most recent figures available from the Ministry of Justice reveal that 74% of the 132,000 applications made in 2007 resulted in charging orders being agreed by the court.
Based on evidence from Citizens Advice Bureaux in England and Wales, Out of order shows how some creditors are using the threat of court action, which would secure unsecured debts against people's homes through a charging order, as a business practice to intimidate people in financial difficulties to pay more than they can reasonably afford. In addition bureaux have also started to report that creditors are asking courts to enforce charging orders through an order for sale, to recover the debt by forcing the sale of a property.
The charity says the law around charging orders is currently unclear and is warning that some creditors are testing the legislation around their use and obtaining charging orders with increasing ease. It is also concerned that there is currently no minimum financial threshold for obtaining a charging order leaving people at risk of losing their homes over potentially very small sums of money.
Citizens Advice Chief Executive David Harker said: "The law as it stands leaves debtors far too exposed to unfair treatment and the risk of losing their homes from unsecured creditors. Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. This is not only unfair to the individuals concerned who have offered payments towards their debts but is also unfair to other creditors."
The charity welcomes the Office of Fair Trading review into the use of charging orders but is now calling on the Ministry of Justice to look at the law and restrict access to enforcement when debtors are doing all they can.
David Harker added: "It is vital that people who are doing their best to repay their debts should be protected from further debt collection or enforcement action and from enforcement related costs that are disproportionate to the size of the debt. The current law on charging orders urgently needs reviewing and appropriate protection put in place."
Citizens Advice is also calling on the Government to implement the debt management provisions of the Tribunals Court and Enforcement Act 2007 to restrict the creditors' rights to enforcement action and enable debtors to make affordable repayments to their creditors which are binding.
Cases seen by Citizens Advice Bureaux:
A Hampshire CAB reported that a 68 year old man sought help with debts totalling £46,000. The CAB helped him make offers to all his creditors on an equitable basis. One of his creditors, a major credit card company, rejected the offer of £99.04 which would clear the debt in nine years. They insisted that they would only accept contractual repayments. If this was not possible, they would take recovery action. The CAB felt that as the client was a homeowner, it was a policy decision to try and get unsecured borrowing secured.
A woman sought advice from a CAB in South-East Wales about multiple debts. One of her creditors wrote to her to tell her that they would be taking county court action, which would be enforced by means of a charging order. The letter invited her to submit "reasonable proposals", however, when telephoned it was made clear that reasonableness was payment in full or a Charging Order. The company also tried to convince the client that they already had a county court judgment they could enforce, when this was not the case.
A Wiltshire CAB reported that a debt purchase company threatened a couple with charging order proceedings for a credit card debt totalling £690. The CAB noted that the debt purchase company seemed to have moved swiftly to an interim charging order without pursuing other means of getting repayment proposals for a very small debt.
A CAB in South-East Wales saw a 31-year-old lone parent who was working part time and in receipt of tax credits. She was up to date with payments on her mortgage, council tax and utility bills but had some county court judgments subject to arrangements, which were also up to date. She also had several non-priority debts including a £2,000 personal loan on which she had an agreement in place with the lender to pay £40 per month. However she then received a letter from a debt collection firm telling her that the debt had been sold to them. The woman contacted them to continue the offer of £40 per month but they told her they wanted £350 per month, which she could not afford. They also told her that the law said she needed to clear her account in six months or they would go for a charging order on her property. They also told her that if the first payment was not made by the end of the month they would go for a charging order on her property.
