Court can ease loan terms to save home

HOMEOWNERS who have borrowed against the equity in their property, for that kitchen, bathroom or conservatory, and now find they cannot afford the repayments, should take advice before arrears build up and lead to repossession proceedings.

Virtually all loans over pounds 50 and under pounds 15,000 are regulated by the Consumer Credit Act. Personal or business bank overdrafts are also included in the Act, except for borrowing by a limitedcompany. A court can alter such agreements if it seems fair to do so, taking into consideration the means of the debtor, hirer or any person who has acted as a loan guarantor for the borrower.

This can involve changing the interest rate or imposing a time order, which reduces the monthly payments by increasing the period of the loan.

It has been viewed with a mixture of fear and suspicion by the credit industry, but money advisers are increasingly using this section of the Act in attempts to save the family home. Application can be made either on receipt of a default notice from the lender or after a summons has been issued.

One case that advisers use to support such an application is that of Delores Thompson in the Croydon County Court in 1991. Mrs Thompson had taken out a pounds 4,000 loan with Cedar Leasing and shortly afterwards had been made redundant. She had insurance that covered her payments for the next year, but she remained unemployed beyond that time. The judge felt that Mrs Thompson had made every effort to ensure her obligations were adequately covered by insurance, but arrears had accrued in the period after she became unemployed and while the insurers were considering her claim.

Mrs Thompson had her payments reduced from over pounds 160 to pounds 120.29 per month. The interest rate was reduced from the original 1.45 per cent per month to 1.08 per cent, or 13 per cent APR.

In most other cases, the courts have also ruled in favour of the borrower. But it would be optimistic for anyone to assume that the time order procedure is a cure-all for every problem. One would need to show an unexpected change in circumstances and generally a responsible history of repayment prior to falling on hard times. Judges will not disregard the interests of the creditors entirely.

Time orders can be applied in all cases of regulated agreements. However, their value clearly lies where the debtor's home is at risk. A judge will wish to know a good deal of background to the case, and it is advisable to seek advice from the Independent Advice Centres, Citizens Advice Bureaux or similar organisations, which should be able to assist in preparing an application.

Once a default notice has been served, an application for a time order can be made on form N440. This will incur a court fee of pounds 40. If a summons for repossession has been issued, however, application is made on form N244 at no cost, because costs will have been added to the summons.

Once a time order has been made, a creditor may not take any further action against the borrower, so long as the terms of the order are kept. However, the order may be varied or revoked on the basis of an application by either party.

Those contemplating applying should be aware that the process is not widely used or well known and may be unfamiliar in some county courts.