Lenders repossess homes for credit card debt

Debt charities have attacked high street banks for repossessing homes to recover debts of just a few thousand pounds.
Thousands of borrowers struggling to repay credit cards or personal loans are at risk of losing their homes because lenders are increasingly keen to secure debts against a borrower’s property, Citizens Advice warned today. The charity has reported a huge increase in the number of charging orders made against homeowners struggling with unsecured debt.
David Harker of Citizens Advice said: “Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. The law leaves debtors far too exposed to unfair treatment and the risk of losing their homes.”
A charging order secures a debt against a property, and allows creditors to apply for an “order for sale” to recover the debt by forcing a sale of the property. It means borrowers could lose their homes over potentially very small sums of money.
Since 2000 there has been a 722 per cent increase in the number of charging order applications, according to the Ministry of Justice. Around 74 per cent of the 132,000 applications made in 2007 were agreed by the courts.
The law currently states that creditors can only apply for a charging order if the borrower has a county court judgment (CCJ) and has been ordered to settle the entire debt and has not paid, or the borrower has been ordered to pay in installments and has missed a payment.
However, Mr. Harker said: “We are now seeing cases that suggest charging orders are being granted even when these circumstances do not apply. Both creditors and judges are working round existing legal safeguards for debtors.”
Lenders frequently initiate court action even if a borrower has arranged a debt repayment plan with a charity such as Citizens Advice, whereby a borrower arranges to make smaller, more affordable monthly repayments. Around 600,000 borrowers are now in debt repayment plans, according to Credit Action, the charity.
Chris Jary of Action for Debt, a debt advisor, said: “Charging orders are now very common and in some cases this will lead to an order of sale. A client from Bradford recently had an order for sale on his house to recover an unsecured loan debt of £12,000. Some orders for sale have been made for debts as little as £4,000.
“It seems particularly iniquitous given that nowhere on the paperwork of a personal loan or credit card does it normally say your house will be repossessed if you do not keep up repayments.”
Many orders for sale are also made by debt purchase companies, who buy default credit accounts from banks and finance companies. Mr Harker said: “These companies are looking to maximise returns and may not be restrained by the same reputational concerns as some high street lenders.”
The Government has already announced a number of schemes to help homeowners struggling with mortgage payments to avoid repossession, including the Homeowner Mortgage Support Scheme, which allows households to defer interest payments for up to two years. However, no extra protection has been offered for homeowners struggling with unsecured debt.
“A number of changes are needed to enforcement legislation to ensure that charging orders and orders for sale become a last resort,” said Mr Harker.

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