IVA & Debt Consolidation Advice

According to Citizens Advice, a new law can put people in England and Wales with debt problems at risk of losing their homes. In the future, a creditor will be allowed to place a lien on the property of debtors even if the debtor has kept up the repayment schedule determined by the court. This change will close a loophole in the law that has allowed homeowners to avoid repaying their debts when they sell their homes though there will still be protection for vulnerable debtors.

At the present time, creditors can recover their money when a homeowner sells his or her property as long as they obtain a Charging Order from the court. They can only do this in the event that the debtor is in default on the payment plan, called a County Court Judgment. Under new proposals that are outlined in the Tribunals, Courts and Enforcement Bill, a homeowner will not have to default on the payment plan for a creditor to obtain a Charging Order.

Sue Edwards from Citizens Advice told BBC Radio 4s Money Box that she has concerns with the bill because even though in most cases a Charging Order means a debt is repaid only when a debtor sells the property, cases may arise where an owner is forced to sell in order to repay the debt. She further goes on to say that if the government intends to make changes, it also needs to make sure that people who can only afford to repay small amounts do not lose their homes.

Citizens Advice says that its bureaus are reporting an increase in the number of firms who are opting to obtain a Charging Order even when a debtor is ready to make repayments. The fear is that any effort to simplify the process will encourage the trend.

Malcolm Hurlston from the Consumer Credit Counselling Service urges all companies to use restraint with any new law. He further states that if the new law is used as a "blunt instrument," it can be dangerous because it gives creditors the power to turn unsecured debts into secured debts.

The government says the change is necessary because of the number of people who with large debts selling properties and keeping the money instead of using it to repay their creditors.

The Ministry of Justice told Money Box that there will be provisions made for vulnerable debtors by imposing a minimum threshold below which no Charging Order can be imposed or a demand for sale made. The thresholds have not yet been set.

Jeremy Sutcliffe, chair of the Civil Court Users Association, sides with the creditors who say they are frustrated by homeowners who claim they don't have the cash to repay their debts. He goes on to say that people's assets are now in their homes, and that the creditors should have a reasonable opportunity to be paid by their debtor through the use of that asset.