Debt strategy likely to result in more home repossessions

Plans by the government and lenders to tackle credit card debt could put homes at risk of repossession, it is feared.

Plans being prepared by the Department for Constitutional Affairs will make it easier for banks, credit card firms and major stores to repossess debtors’ homes.

The department is planning legislation to allow charging orders to be made even against those who are keeping up the agreed payments to pay off their debts.

A charging order is a means of securing a debt by placing a charge onto the debtor’s immovable property. The order allows a creditor to apply subsequently to the court for an order for sale.

Charging orders therefore provide a means by which a creditor can gain access to any equity a debtor holds in a property.

At present the court cannot make a charging order when payments due under an instalment order are not in arrears. But the DCA is proposing that enforcement by way of a charging order should be made available in cases in which debtors are not in arrears with an instalment order.

The government believes that allowing lenders to obtain a charging order even when someone is making agreed payments closes a loophole in the law. It says at present people who have agreed to pay in small instalments can benefit from the sale of their property because they do not have to pay off the outstanding sum.

The DCA paper states: “The debtor therefore obtains a capital sum and is under no obligation to make any payments towards the judgement debt.”

David Lane, regional manager at Genworth Financial Payment Protection Insurance, says that if the proposals outlined by the DCA are implemented, the government and lenders will have a responsibility to ensure borrowers are aware of the risks they may face.

He adds: “Personal debt isreaching new levels and over 30% of households have no savings to fall back on. There is now a real needfor more to be done to educate the public about the importance of building a financial safety net, and the role payment protection can play.”