Debts & Loans

According to sources from within the debt advice industry, some borrowers with as little as £1,000 of credit card debt have been forced to sell their homes through charging orders.

This is despite recent moves by the Ministry of Justice to protect vulnerable borrowers in the wake of the credit crunch.

Mortgages: Homes snatched for two missed payments

Charging orders were first introduced in 1980, but their use has dramatically increased in recent years: there has been a tenfold increase in since 2000 and a 100% increase over the past two years.

Creditors can force a borrower to sell their home to repay unsecured debts through a 'charging order', a process which has come to light after Yvette Cooper, chief secretary to the Treasury, called for more measures to help people in danger of losing their homes.

In response to this, the Ministry of Justice decided to shelve plans to strengthen the act underlying the orders, the Tribunals, Courts and Enforcement Act 2007, in favour of banks.

Are you worried about the safety of your home after receiving a charging order? Read our step-by-step guide to charing orders to find out more...

Under the draconian revision, which has been given Royal Assent but will remain unenforced for the foreseeable future, banks would have had the right to force people to sell their homes without seeking a county court judgment.

Shockingly, they could even do this if these people were keeping up to date with their loan repayments after agreeing a repayment schedule through the county courts.

The move was aimed at preventing indebted people from securing low monthly repayments and a freeze on their loan interest, then voluntarily selling their home, saving money in loan interest in the process, according to the Ministry of Justice.

However, an obvious consequence of the revision is that people who are making an effort to stick to agreed repayments may be involuntarily turfed out on the street by lenders.

One way in which the revision could have benefited borrowers – by setting a minimum limit on the amount owed for which a house could be sold – has now also been put off indefinitely.

Therefore, debtors could theoretically be forced to sell their homes for only £1,000 of unpaid, unsecured credit card debt.

Despite this, people at risk may be able to escape the consequences of a charging order by following a step-by-step guide.

The revisions may have been delayed to protect borrowers in difficult times, but when This is Money put it to the Ministry of Justice that the Act seriously disadvantages borrowers nonetheless, a spokesperson said: 'Although the changes to the Act were put on hold to benefit debtors, there is a chance some debtors may have to sell their homes to repay smaller amounts of debts.'

Vince Cable, the Liberal Democrat Treasury spokesman, said: 'No one should be allowed to lose their home simply because of a credit card debt. More needs to be done by the government to ensure that lenders simply do not act overzealously, and only take possession of properties as a last resort. The fact that banks can now kick people out of their homes for not keeping up with their unsecured debts is very worrying.'

Although the Citizens Advice Bureau would not comment on the Act as the minimum limits for charging orders has yet to be decided, a spokesperson said the Act would make it 'easier for creditors to get their money'.