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Does a DMP protect my house from a charging order

Does a DMP protect my house from a charging order

Even though you may be in a debt management plan, your creditors can still apply for a charging order. If successful, this would secure their debt against your home.

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Can creditors get a charging order if you are in a DMP?

A significant disadvantage of a debt management plan is that it does not give any legal protection from your creditors.

The creditors can still decide to take additional enforcement action against you at any time. This is the case even where you have never missed any of your Plan payments.

This means if you are a home owner, creditors are still legally entitled to apply for a Charging Order against your property.

Where such an application is made, the Court is likely to grant the charge. This is because it gives the creditor added protection but does not does not directly impact your home. It does not mean the property can be forcibly sold.

It is very unlikely that standard banks would apply for a charging order if you are keeping up with your DMP payments. However there is an increased risk if a debt purchaser such as Link Financial or Arrow Global takes over.

What can you do if a charge is issued against your property?

Once a Charging Order is issued, the associated debt is then secured against your property. However the creditor has no power to force the sale of your home.

If you decide to sell, the outstanding debt will be paid in full from your equity. However, if you want, you can just continue paying off the debt as part of the same debt management plan.

The only downside to this is that once a charge is issued, the creditor might be able to charging interest. Where they do this it will be at the rate of 8% per year. As a result, unless you are paying a reasonable amount towards the debt each month, the outstanding balance will increase not fall.

Depending on the circumstances, it might be better to make a separate agreement to pay the debt outside of your DMP. You should also consider whether it is possible to raise some cash to settle this debt early.

After a charging order is issued, you are not obliged to sell your home. However interest may be added to the debt so you should try to pay it off as soon as possible.

Can an existing charge be included in a DMP?

Yes. It is possible to included a debt with a charging order attached in a debt management plan.

Of course the creditor will have to agree to the monthly payment amount. But they might do because you are still committed to repaying all of the debt you owe. Just at a more managable rate.

The issue however, is normally that the amount paid off the charge each month through the DMP is likely to be small. If the associated creditor is unhappy with this amount, they could start charging interest as a result.

Given this, where possible it is generally a better option to set up a stand-alone payment agreement to pay the charge outside your DMP. If you don’t have sufficient funds to do both then consider token payments towards your other debts until the charge is paid.

If interest is already being added to your charge, including it in a DMP will not stop this. In these circumstances the charge should be paid or settled as soon as possible.

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    4 thoughts on “Does a DMP protect my house from a charging order

    1. Doug says:

      I have a property the has a charging order on it from the legal aid agency. The order is against me personally. The order has been secured against a property that owned as tenants in common. Do you know what would happen when the property is sold if its value is equal to the amount of the charge. How would the other party who owns the property get their money?

      1. Hi Doug

        I am not a solicitor so you will have to check this. That said, it is my understanding that where there are tenants in common (ie joint owners), the charge is registered as an equitable charge. The owner of the charge then has the right to register a restriction against the property. However, this only means that they only have the right to be notified about any sale. The debt itself does not have to be paid if the property is sold.

        In other words, I believe you could sell the property without paying the charge. Any equity could be divided between the owners as per the tenants in common agreement. The debt for which the charge was issued would still be owing but by definition would then be unsecured again.

        As I have said you need to check this with a solicitor but I believe it is correct.

    2. Lissa says:

      Hello. I am currently set up on a DMP with Step Change. I have not missed any payments. One of the creditors – Link Financial – has made an application for a charging order against me, even though I am paying the debt that they agreed to. What are my options here as I find this very unfair, especially during this pandemic.

      1. Hi Lissa

        One of the major disadvantages of a debt management plan is that it does not give you any legal protection from your creditors. As such they are allowed to take further action to collect their debt. It does not matter whether you have missed payments or not.

        Link Financial are perfectly within their legal rights to first apply for a CCJ (which I assume is what happened) and then automatically apply for a charge against your property. This will then secure their debt. Debt purchasers like Link tend to be more aggressive in their collection processes so this is not unexpected.

        I do not think you will be able to stop this. You can attend the Court Hearing if you like but in my experience it will be very likely that the Judge will grant the Charge. This is because a charge does not mean Link can then force you to sell your house. It just secures the debt. You can continue with your DMP and continue to pay Link as normal.

        The only issue is that once a charge is issued, the creditor normally has the right to start adding interest to the debt at 8% pa. As such it would be sensible to pay off this debt as fast as you can. One option is agreeing a separate payment plan with Link to repay them faster.

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