Can Unsecured Debt Cost You Your Home?
Look at any advert for a secured loan or mortgage, and down at the bottom you'll see something like:
'Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it'
This warning is required by law, to make sure that anyone taking out one of these loans is aware that their home is potentially at risk if the loan repayments are not made. You don't see this type of warning on credit card adverts or statements - credit cards are a form of unsecured finance, meaning that your home is not directly at risk should you default.
This doesn't, however, mean that homeowners can ignore their liabilities with impunity - unpaid credit card debt CAN have consequences for your home, in one of two ways.
Charging Orders
These are a way for creditors to demand repayment of an unpaid debt. They can only be made on debts which have been subject to a county court order, and which still remain unpaid. The creditor can apply to the court for a charging order which, although it doesn't force the sale of your home, means that whenever the property is sold, the proceeds are first used to clear the debt before any remaining money is passed on to the property seller.
This isn't as bad as repossession, obviously, as it delays action until the home is actually sold. It does however mean that the apparent value of your home is seriously diminished, and could result in you effectively being in negative equity with all the problems that entails.
Bankruptcy
In serious cases of unpaid debt, the creditor can apply to have you declared bankrupt. This can result in all your assets - including your home - being seized and sold to pay off your debts. This is unlikely to happen with a debt of just a few thousand pounds, as few judges will take such a serious step over small to medium debts. You will normally be able to come to some sort of repayment arrangement before things get to this stage.
So, as we can see, while unsecured credit problems can't lead directly to you losing your home, the value of your home isn't tucked away safely out of reach of your creditors, and can indeed be used to pay off the debt.
Related Articles:
- Should I Hand Back My House Keys When Facing Repossession
- What If You Can't Pay Your Mortgage?
- Avoid Repossession with Sell and Rent Back
- What To Do If You've Missed A Mortgage Payment
- Negative Equity
- What Are Charging Orders?
- Could Your Home Be Repossessed?
Site is for information only and does not constitute financial advice. E&OE.
