The dramatic growth in second charge loans being secured by creditors against debtors’ homes reflects the increased determination of creditors to get their money back, as the  the credit crunch drives up the number of households in serious debt.

The number of court orders issued by lenders to secure these charging orders rose 42 per cent in 2007 to 131,644, according to the Ministry of Justice.

Lenders have traditionally pursued debtors through the small claims courts for repayment, but the  rise in the size of unsecured household debt and the upsurge in bankruptcies have prompted creditors to  apply for a second charge on debtors’ property when that fails.

While charging orders rarely result in homeowners being re-possessed, they are a useful way for  creditors to ensure that they get repaid when the house is eventually sold, because a charging order will rank as as a second mortgage and be paid after the principal mortgage and any consolidated loans have been settled.

John Fairhurst of debt advisory company, Payplan, says the number of people with charging orders on their properties could be much higher than the official figures suggest, because the latter don’t account for instances where debtors voluntarily give their creditor a second charge on their home, in return for for a freeze on their debt or some other inducement.

Fairhust says: “A charging order gives comfort to the creditor that if the debtor goes bankrupt, they will get their money back, with interest. They are treating these orders almost as an insurance policy for repayment.

“The typical client we see has £40,000 of unsecured debt in the  form of credit card debt and personal loan,  which the creditor is unlikely to get back of in a bankruptcy,  whereas a second charge on a property will rank third or fourth. So it’s worthwhile for creditors to spend £200-£300 on a charging order.”

Payplan expects an upsurge in bankruptcies and IVAs later this year as the credit crunch limits the availability of easy credit for those with poor payment histories. The debt advisory firm makes its money by charging creditors 10 per cent of any money it recovers as a result of putting clients onto a debt management plan, although a few companies such as GE Capital refuse to do so.

“Some debt recovery organisations working on behalf of the big banks have become very aggressive of late, so I expect to see more charging orders in the coming months,” says Fairhurst.