Can I stop a charging order with a Trust Deed?
If you are a homeowner in Scotland and you are struggling to pay debt one of the legal actions that your unsecured creditors can take against you is to apply for a charging order against your property.
Once the creditor has applied for a charging order a Court Judge will decide whether or not the Order should be granted. If it is then the debt which was originally unsecured becomes secured against your home.
As a result once you come to sell your home if you have not already paid the debt by that time, it will be paid in full out of the equity available in the property. If there is no equity and the debt cannot be paid, then the creditor can block the sale.
Charging orders can therefore cause significant problems and protecting against them can be one of the reasons to start a Trust Deed.
A Trust Deed protects your property against charging orders
Once in place a Trust Deed (TD) prevents legal action being taken against you as an individual or your property.
As such if you are a home owner and you are in a TD, your creditors are then not allowed to apply for charging orders against your home.
It is important to understand that if as a home owner you start a TD, you will be required to release the equity in your property at the time your Trust Deed starts to put towards your debt. However you remain in control and ultimately any unpaid debt at the end of the process is written off.
If you are using an informal debt management solution such as a Debt Management Plan (DMP) and a charging order is issued against your property you will eventually have to pay this debt in full from the equity in your home.
Do you want help to start a Trust Deed? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts
What if a creditor is already applying for a charging order?
If one of your creditors is already in the process of applying for a charging order, it is not too late to take action to protect your home with a Trust Deed (TD).
Even if a court date has already been set for the charging order application to be heard it is still possible to prevent the hearing from happening at all. This can be done by applying for an Interim Order.
An Interim Order is a court order which suspends any further court action being taken against you or your property to give time for your TD to be put in place which will be in the best interests of all of your creditors.
The interim order can be put in place very quickly but even so if you know an application for a charging order is underway and especially if a date for the court hearing has been set you need to act quickly.
What if a charging order is already in place?
If a charging order has been put in place by the court, then it means the associated debt is now secured against your property.
Once this has happened this debt can no longer be included in a Trust Deed. A charging order is an extremely strong legal tool and there is very little you will be able to do about it other than pay the debt in full.
Having said that a TD might still help if you have other unsecured debts. If you reduce the amount you are paying towards these debts using a TD, then this will free up cash to allow you to make reasonable monthly payments towards the charging order debt and pay it as quickly as possible.
It is always in your best interests to pay the charging order debt as soon as possible as statutory interest will be added to it at the rate of 8 percent per year.
The TD solution should be considered if you are a homeowner
Home owners are sometimes put off starting Trust Deeds because of the fact that they have to agree to release equity from their property as part of the agreement.
However if your primary objective is to protect the equity in your property you will not necessarily achieve this by using a debt management plan (DMP).
If you start a DMP your creditors are not prevented from applying for charging orders against your home. If they decide to do so and are successful then the debts will eventually have to be paid in full from your equity when you sell your home if not before.
Using an Trust Deed will stop charging orders from being issued in the first place.
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