Can They Take Your House for Credit Card Debt? 

Are you worried about not being able to pay credit card debt? You’ve come to the right place. Each month, over 170,000 people visit our website seeking guidance on debt solutions.

This article is here to help you understand the laws around credit card debt in the UK for 2023. We’ll talk about:

•  If your house can be taken away because of credit card debt.
•  What an Order for Sale is, and if it relates to your house.
•  Possible ways to write off some debt.
•  How credit cards can affect your credit score.
•  Tips on how to avoid a County Court Judgement (CCJ) for credit card debt.

StepChange states that over two-thirds of their clients struggle with credit card debt, averaging over £6,500.¹ So rest assured, you’re not alone.

Dealing with debt can be hard, but remember, there are solutions. We’ll walk you through your options and help you find a way that works for you.

Can My Home be Taken Away from Me? 

The short answer is no.

However, there are some nuances to it which you definitely need to be aware of.

The first thing to keep in mind is that there are mainly two types of debts: unsecured debts and secured debts. 

A secured debt is one in which one (or more) of your assets are tied to it as ‘security’. This means that your creditor has the right to take those assets away from you in case you start falling behind on your payments. 

Some examples of secured debts are: 

• Secured loans
• Mortgages
• Car loans 
• Hire purchase agreements for any item that may have been bought using that agreement.
  
  [A Hire Purchase agreement is one in which an item is purchased and the money is paid back to the vendor in instalments. If you fall behind on your payments, then the item can be taken back by the vendor.]

Thus, in all of these examples, the creditor has some form of ‘security’ to fall back on in case you are unable to pay back the money you owe. 

Unsecured debts are ones in which no form of assets are included in the form of ‘security’ for your creditors.

If you start falling behind on your payments, your creditors have no right to seize any of your assets. They can, however, take court action against you and try to get you to pay the money you owe that way.

This is usually a last resort for most creditors and only occurs if they’ve completely exhausted every other avenue of making you pay back the money you owe. 

Some examples of unsecured debts are: 

• Payday loans
• Unsecured personal loans
• Credit Cards
• Overdrafts

As you can see, credit cards are one of the prime examples of unsecured debt.

Thus, if you start falling behind on your payments towards the outstanding balance on your credit card account, then your credit card company does not have the right to take away any of your assets to pay off your debt, especially not your house. 

So, My Property is Completely Safe? 

In most cases, yes.

However, there are definitely some things you need to keep in mind with credit cards and credit card companies.

Debt on your credit card is, obviously, not secured against your home. This means that if you fall behind on your payments, then your creditor has no right to seize your home.

However, once you start falling behind, according to guidelines authorised and regulated by the Financial Conduct Authority, your creditor has the right to contact you and request you to get back on track and start paying off the money you owe.

If you fail to start paying back your debt, your creditor then has the right to pursue court action against you. This can be when a creditor decides to get a Country Court Judgment (CCJ) against you.

A CCJ will then entail a detailed repayment plan for you which you will definitely need to stick to. If you fail to make payments towards your CCJ, then this can have extremely severe consequences.

Firstly, bailiffs can be sent to your residence if you fail to make payments towards your CCJ.

Bailiffs are individuals that have the legal right to seize items on your property and sell them in order to pay for the debt you owe. 

If you are worried about potential bailiff involvement, you can contact a debt charity for some free advice.

The short of it is that bailiffs can’t enter your home unless you give them permission or you leave the door open. They can’t force entry.

So if you don’t want them in your house, don’t let them.

Secondly, the creditor can also pursue what is called a ‘charging order’ against you if you have a CCJ. This is not a repossession!

Charging orders are not repossessions – they just mean that your creditor will get some money to cover your debts if or when you sell your home.

For all CCJs that have been issued after the 1st of October 2012, creditors have the right to get a charging order against you even if you’ve been up to date on your payments. 

For CCJs issued before that date, creditors can only obtain a charging order against you if you have missed a payment towards your CCJ or if you’ve failed to pay the lump sum amount immediately if it was ordered by the court. 

This is something that only applies to court action that has been pursued in England and Wales. It’s an action that basically turns unsecured debt into secured debt. 

We’ve already mentioned that this action turns an unsecured debt into a secured debt but what does it secure this debt against? Well yes, it secures it against your home.

While this may seem troubling, it’s important to keep in mind that a charging order does not always mean that you will lose your home.

As I mentioned above, it means that if you sell your home or obtain a remortgage on it before you have cleared your debt to the creditor, then all of the profit you obtain will be paid directly towards your debt.

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What is an Order for Sale? 

If you have a charging order against you and you have been missing payments towards your debt, then your creditors can opt to pursue an Order for Sale.

An order for sale entails that you will have to sell your home and all of the proceeds from that sale will be given directly to your creditor in order to take care of your debt. 

Keep in mind that if your CCJ was after the 1st of October 2012, then the creditor cannot apply for an order of sale against you if you have been keeping up to date with your payments towards your CCJ. 

Furthermore, an order of sale can only be pursued for debts that are greater than £1,000. 

Orders of sale are typically extremely rare. 

Even if a creditor applies for one, there’s a chance that it won’t be passed. In the case of an order for sale, another hearing would be called and you would have another chance to explain yourself to a judge. 

Can I Get A Debt Solution? 

You might be able to get a debt solution to help you manage some of your unsecured debts.

You might even be able to use a debt solution to avoid potential legal action from your creditors.

There are several different debt solutions available in the UK, so I recommend speaking to a debt charity as soon as possible.

Their advisors will be able to look at your finances in detail and help you work out which debt solution will work best for you.

I have linked a few charities that offer these advisory services for free below.

Debt Management Plan (DMP)

A DMP is an informal debt solution that lets you pay off your debts via a single monthly payment.

Because it is informal, it is not legally binding so you are not tied into a DMP for a minimum number of payments.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement between you and your creditors. You agree to pay a monthly sum that is distributed amongst your debts, and your creditors agree not to contact you during your IVA.

IVAs typically last for 5 or 6 years, and any outstanding debt is wiped off when it ends.

Keep in mind that IVAs are not suitable for everyone. You need to owe several thousand pounds to more than one creditor to be eligible. You also need to demonstrate that you have some disposable income every month.

Trust Deed

IVAs are not available in Scotland. Instead, you will need to opt for a Trust Deed.

Trust Deeds work in the same way as an IVA – you pay an agreed sum each month that is shared amongst your creditors, they can’t contact you, and any leftover debt at the end of your Trust Deed term is written off.

Debt Relief Order (DRO)

A DRO is a good option for those facing financial hardship with no assets and little income.

For 12 months, you make no payments, but your creditors freeze your interest and don’t contact you.

If your finances haven’t improved during this year, you may be able to write off your unsecured debts.

Bankruptcy

If you have debts but no realistic possibility of ever paying them off, you may need to declare bankruptcy.

Bankruptcy has an unfair stigma attached to it as it may be your only way of getting a financial fresh start. That said, it is a serious financial situation that should not be taken lightly.

Sequestration

Sequestration is the Scottish version of bankruptcy.

If you have little income and no valuable assets, you may be able to apply for a minimal asset process bankruptcy (MAP). A MAP is a quicker, cheaper, and more straightforward version of sequestration, so worth considering.

What is the Breathing Space Scheme?

You might be worried about debt collectors or legal action while you try to find a solution to your financial problems.

It might be time to look into the Debt Respite Scheme (Breathing Space) from the government.

The Breathing Space scheme gives you a moment to get some advice or even start a debt solution.

It started in May 2021 and gives you 60 days of no added fees, added interest, or enforcement action once you have passed the eligibility checks.

There are two types of breathing space that you can apply for:

• A standard breathing space: available for anyone with debt problems. It lasts for 60 days.
• A mental health crisis breathing space: available to those who are receiving mental health crisis treatment. It lasts for however long treatment takes, plus 30 days. 

This scheme is not available in Scotland. Instead, you will need to apply for a Statutory Moratorium.

References

1. StepChange – Personal Debt in the UK