Charging Order to enforce a judgment - the pros and cons

Solicitors to advise on charging orders

It's often a surprise for business or personal clients to discover that once you get a civil court judgment, there is no guarantee of being able to enforce that judgment.

Considering how you might enforce a judgment is essential before starting legal proceedings. If you have a judgment and are assessing your options and know that the judgment debtor has a property in their name, a charging order should be high up on the list of enforcement options.

We advise and represent clients applying for a charging order and possibly thereafter applying for an Order for sale. We also advise and represent judgment debtors who are facing applications relating to charging orders.

Some of the the pros and cons of enforcing a judgment in the UK with a charging order are :-:

Pros:

1. Secures the Debt: A charging order gives the creditor a legal charge on the debtor's property, which means that when the property is sold, the creditor will be paid from net proceeds after payment of any prior secured charges such as a mortgage. This provides a level of security that the debt will likley be paid, subject to their being likely equity in the property in the future..

2. Priority over Unsecured Creditors: With a charging order in place, your claim will take priority over unsecured creditors if the property is sold. This can increase the likelihood of recovering the debt.

3. Interest Accrual: The debt continues to accrue interest while the charging order is in effect, which can help compensate the creditor for the time it takes to recover the debt.

4. Pressure on the Debtor: Knowing that their property is at risk if you apply for an order for sale can put pressure on the debtor to settle the debt or negotiate a repayment plan.

Cons:

1. No Immediate Payment: Obtaining a charging order does not guarantee immediate payment. The creditor will only receive the proceeds when the property is sold, which may take a long time. You can apply for an order for sale but this is generally risky and very unlikely to succeed if the debtor has a family living at the property, if there is equity in the property and your judgment is not for a fairly significant sum of money.

2. Dependent on Property Value: The effectiveness of a charging order depends on the value of the debtor's property. If the property is worth less than the debt, the creditor may not recover the full amount owed.

3. Risk of Bankruptcy: If the debtor goes bankrupt, the charging order may become less effective, as it may be included in the bankruptcy estate and distributed among all creditors.

Creditors should carefully consider their options and seek legal advice before pursuing this enforcement method.

Process for obtaining a charging order

To request a charging order, you must complete Form N379 and apply at court for an interim charging. You will need to include details of  :-

1. the property you are seeking the order over including ownership.

2. other creditors you are aware of and anyone else with an interest in the property.

3. Any additional information relevant for the court.

Once the court receives your application,  if all is in order an interim charging order is made and you will need to register this at the Land Registry. There will then be another hearing to decide whether a final charging order will be made.