Will I get a charging order if I do a debt management plan?

Are you a home owner and about to start a debt management plan? We consider if your house is at risk from a charging order.

Debt management plans (DMP) are popular with homeowners because they do not force you to release equity from your property which then has to be paid towards your unsecured debts.

However one of the disadvantages of a debt management plan is that it is not a legally binding agreement.

This means that the people you owe money to can continue to take legal action against you to collect their debt. This action could include applying for a charging order against your property.

What is a charging order?

A charging order effectively makes an unsecured debt such as a credit card or personal loan balance into a secured debt against your property.

Once the charging order is in place, you still continue to make payments towards your debt which could still remain part of a debt management plan. The creditor may also be allowed to continue charging interest.

When you sell your home, the outstanding charging order debt will be paid in full out of any home equity available.

A lot of people worry that if they receive a charging order, they will then be forced to sell their home. In fact this rarely happens.

To force you to sell your property, the person you own money to must return to the court and apply for an order of sale. The court will generally not grant an order of sale unless there are very particular circumstances.

Likelihood of getting a charging order

Although a DMP will not give you legal protection, starting a debt management plan will significantly reduce the likelihood of an application for a charging order being made against you.

As long as you are making your best effort to repay as much as you can through your DMP, the banks you owe money to are unlikely to take further legal action against you.

Applying for a charging order takes time and money and very often there is no guarantee that you will pay the debt owed any faster that you are currently doing through your DMP.

If your creditors accept your debt management plan and stop adding interest and charges to your accounts, you can be fairly sure that they will not then apply for a charging order against your property as long as you maintain your monthly payments.

Being sure of legal protection

Government figures show that the number of charging orders awarded has fallen in the last three years. However, in the first three months of 2011 there were still around 24,000 charging orders granted by the courts. This equates to nearly 100,000 charging orders that will be granted this year.

As such, although carrying out a debt management plan will reduce the likelihood of you getting a charging order, it does not give a guarantee that your home will be protected.

The only way you can be sure that interest and charges will be frozen and further legal action against you is stopped is to carry out the alternative debt solution known as an individual voluntary arrangement (IVA).

However, as a home owner, before starting an IVA you must understand that you may be required to release equity as part of the agreement.

DMP flexibility

Doing a DMP will considerably reduce the possibility of any of the people you owe money to applying for a charging order against your home.

If they accept the debt management plan you will have very little reason to worry.

However, of the advantages of a debt management plan is that it is flexible.

Having started your DMP, if you feel that your creditors are continuing to be aggressive and you are worried that they might take further court action against you, you can change or stop using your DMP at any time.

This means that you can always swapping from a debt management plan to an individual voluntary arrangement and thus get legal protection for your property at that time if you feel it is required.



James Falla is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Debt Management Plans, visit our website at http://www.beatmydebt.com