Are You In Debt? When You Have Nothing Often There’s Nothing To Fear!

(Even negative equity is not always a bad thing!)

It is not often that people who are struggling with oppressive debt consult lawyers – for the obvious reason that they can’t afford legal bills – (At Seatons we’re working on being able to provide some practical guides to such areas of law that will be affordable for all – Charging Orders, Debt Enforcement, Bailiffs etc - so watch this space!) but I had a call from a client today and whilst he had enough to pay for the help given, I thought the general thrust of the advice would be useful to anyone struggling with their finances.

Many years ago I used to take instruction from some of the large Finance Houses – banks, building societies and the like – to recover loans etc that had been defaulted on. On many occasions on having satisfied the Court that the money was owed and securing judgment for the Claimant firms - I would then be instructed on the enforcement of the debt. I am not proud of this period of my legal career –many of the Defendants were desperate but within the restrictions of being the Claimant representative at Court I would always seek to make the process as palatable as possible – and I now use the expertise gained in this area for the ‘small guy’ as opposed to the International Finance Houses.

Today my client, let’s call him Mr S, was at a loss – after a failed business venture he had approximately £50,000.00 of debt owed under a judgment of the County Court. The firm to which the monies were owed then proceeded to ‘attach’ the debt to his house – his home - under a Charging Order. His house was in negative equity to the tune of about £40,000.00 and he was desperate – or so he thought. Since securing the money owed to his house he received a letter every year from the Bank’s lawyers insisting on payment and suggesting they may seek to make him sell his home to repay them. He had a family and had not managed to get fully back on his feet. He could cover his living expenses but couldn’t afford anything towards the business debt he owed. His worries were:

• What is the Bank going to do next?
• What could the Bank do next?
• What could he do to keep hold of his home?

So let’s unpick it:

As the Bank had a Charging Order it was available to them to make an application to force my client to sell his house to satisfy the debt owed – This is known as a Part 8 Application for Sale. The only problem the Bank faced was that as the property was in negative equity (he owed more to his mortgage company than the property was worth), even if the Court ordered the sale of my client’s home there wouldn’t be any money left for the Bank to take after the outstanding mortgage had been paid. Charges that secure debt against a home ‘take in time’ which means that whichever lender or creditor registers their charge first with the Land Registry gets paid from the sale proceeds first – paid in full if there is enough money. If there is any money left after the first Charge holder has been paid then any second creditor will be paid, then if any money is left over any third…and so on.

In my client’s case the sale of the property would not even discharge his original mortgage so the chances of the Court making him homeless to satisfy any second or third creditor’s Charges (which simply is not possible given the negative equity) are slim to none. It is important to appreciate that if there was enough equity in the property then he would be at risk of losing his home – but in this case there is none. So the Bank's threats were effectively hollow and served only to scare and intimidate.

The bottom line at English law is that if you haven’t got the money to pay a creditor, then you can’t pay – no one can make you have the money to pay and we did away with debtor’s prison quite rightly some time ago. In the bad old days of working for the Finance Houses I was often told by judges “You can’t get blood out of a stone” – and it is true. Generally the Court will not grant a creditor an application to force the sale of a home unless it will address the debt in some meaningful way. We then went on to discuss how to negotiate effectively with creditors which again I think was useful.

If you are reading this Mr S – It was a pleasure talking to you and I hope you eventually manage to get back on your feet – I am sure you will. Remember debt is a situation that you are in – it doesn’t define you and sadly these days your situation is not unique by a long shot – every day every County Court list has hundreds of people in the same boat.

If you would like help with a debt matter – give us a call FREE on 0800 3 10 11 12 – we will let you know the cost up front and as always we will keep legal costs to a minimum.