The new Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2013, which came into effect on April 6th, dramatically reduce the threshold for such claims from that initially outlined in the Coalition Agreement.
Charging Orders are controversial, as they allow a creditor to effectively retrospectively secure a loan against property owned by the debtor – even if the borrowing was initially agreed as an unsecured loan.
Opponents to Charging Orders argue that this is unfair, as unsecured loans are already structured in a way that mitigates the risk to the creditor – typically by charging higher fees and interest rates than would be agreed on a secured loan.
In the Coalition’s infancy, the threshold for Charging Orders was set at £25,000, subject to consultation with creditors, debtors, the judiciary and legal professionals.
By the time the legislation came into force on April 6th, however, the threshold had been slashed dramatically, to just £1,000 – meaning unsecured lending of just £1,001 could theoretically now see a householder lose their home, if pursued aggressively through the courts.
In a House of Commons debate in January, parliamentary undersecretary of state for justice Helen Grant explained the logic behind the lowered threshold.
She claimed that Charging Orders are preferable to bankruptcy for debtors – and, as such, that the threshold should be set at a level such that Charging Orders are the first port of call for creditors when pursuing their funds.
“It is also important to remember that, when we talk about creditors, that does not just mean large organisations; it also means individuals and small businesses,” she added, for whom it could be beneficial to be able to recover debts below £25,000 using Charging Orders.
While £1,000 may seem a low threshold for critics, it is worth noting that the legislation states that, for Charging Orders applied for before April 6th, enforcement even on amounts of less than £1,000 cannot be prevented.