Debtors At Risk Under New Law
Debt advisers are warning that a new law aimed at struggling debtors could lead to an increase in repossessions, according to the Guardian. Lenders will be able to use “charging orders” against unsecured debts, like personal loans and credit cards debt, and convert them into secured charges against the borrower’s home or property.
Unsecured borrowing does not require collateral, as compared to secured funding which in the typical example involves a homeowner obtaining credit by using their home as security to, for example, purchase a car. This is known as a ‘secured loan‘ and is perceived as less risky to the lender because if the debt remains unpaid then the lender has the legal right to force the homeowner to sell their property in order to recoup monies owed.
Currently, a charging order can be applied to a debtor only if they have a CCJ (County Court Judgment) and failed to make repayments according to the agreements made by the court. However, the new law will allow creditors to pursue a charging order the moment a CCJ has been issued. So, whether or not the debtor has agreed to a repayment schedule, the fact they were issued a CCJ at all makes them vulnerable to the possibility of a charging order and thereby repossession. The debtor must not miss a single repayment or the lender ask the court to impose a sale of the debtor’s home to reclaim their funds.