Can I Lose my House over Unsecured Debt? 

Are you worried about your unsecured debt? Do you fear losing your house over it? This article is here to help you understand the rules of personal loans in 2023 and how they might affect you.

Every month, over 2,700 people visit our site seeking advice on personal loans, so you’re not alone.

In this article, we’ll explain:

• How unsecured debt is different from secured debt.
• What can happen if you don’t pay an unsecured debt.
• If your creditor can take you to court for unsecured debt.

We know that being in debt can feel scary and lonely. But remember, we’re here to help you make sense of it all. We’ll provide clear and simple advice, so you can understand your situation better.

How Is Unsecured Debt Different From Secured Debt?

To provide some contrast, we need to look at what a secured loan is. This type of credit is secured against a particular asset as part of the credit agreement that you will sign. Some examples of a secured loan include:

• Hire purchase or car finance – secured against the vehicle itself.
• A mortgage – secured against the property the mortgage is for.
• Cash advances from a pawnbroker – secured against the item you have pawned.

In each case, if you don’t repay the debt, then the item that it is secured against could be taken from you.

What Happens if You Don’t Pay an Unsecured Debt?

If you do not pay an unsecured debt, then the creditor will begin pursuing you for payment. Either directly or by passing the debt to a collection agency such as Lowell Financial or Cabot Financial. An escalating series of events will take place as the creditor or their agent tries to get you to pay up.

This will start with reminder letters, then move on to phone calls and home visits (often in the evening or at the weekend). Some debt collectors can be aggressive in the way they pursue a debt, threatening legal action and generally trying to scare you. However, it is important to remember that the creditor would prefer you settle the debt, even if this means paying lower monthly instalments over a longer term rather than taking you to court.

Every debtor in the UK has certain rights. The Financial Conduct Authority (FCA) has guidelines that creditors and debt collection agencies must adhere to. They can’t harass you, misrepresent the amount you owe, or enter your home without permission. Familiarising yourself with these rights can be empowering and give you a clear perspective on how to handle communications with creditors.

Will You Lose Your Home if You Don’t Pay the Debt?

Following on from the previous section that covered the initial issuing of an interim charging order, the next step is for the court to issue a final charging order. If you have been sent an interim charging order, you have 28 days to appeal against a final charging order being issued. The court will decide whether a hearing is required to decide whether to issue a final charging order or not after your appeal.

If a hearing is required, you can attend this hearing yourself. When the hearing takes place, the judge will take a number of factors into consideration, including:

• Any evidence that you provided that explains why you believe a final charging order should not be issued.
• The evidence from your creditor proving you owe the debt and the history of repayment problems.

Once evidence from both sides has been considered, the judge will decide whether a final chagrin order is warranted or not. Once the final chagrin order is in place, there are two possible outcomes.

1. Your creditor will want you to repay the debt, and if you do not, you must pay back the debt in full if you sell your home.
2. Your creditor will apply to the court for an order of sale to be issued. If this happens, you must then sell your home and pay back your creditor from the proceeds. 

Obviously, you really do not want matters to go this far unless you have no other option than not paying the debt, as losing your home would be a financially crippling event in most cases.

Can Your Creditor Take You to Court for Unsecured Debt?

If your creditor has tried other ways to get you to pay up, it may approach the local court to have a County Court Judgment (CCJ) issued against the debt. This is the first step in a legal process that could have a number of different outcomes, such as those listed below.

1. The court issues an attachment of the earnings order, and the debt is repaid by taking payments directly from your wages/salary.
2. County court bailiffs are sent to your home to collect the debt or to take goods to be sold off to pay the debt.
3. The court issues a charging order, securing the debt against your property (more on this in the next section).

How to Communicate with Creditors

Effective communication with creditors is key. Always keep records of your interactions. If you’re facing financial difficulties, be upfront and consider proposing a revised payment plan. Remember, it’s in the creditor’s interest to recover the debt, so they might be willing to negotiate a feasible repayment structure