When we take out a loan, either unsecured or secured do we consider what happens should we start getting into financial trouble? Typically loans are either taken out for debt consolidation purposes or for a holiday, house extension etc. However, we need to know what the risks are when taking out such loans.

Every home-owner will recognise the financial health warning which accompanies all mortgages:

"Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it."

This means that if you fail to keep up with your monthly repayments on your secured debts, such as mortgages and secured loans, you are putting your home at risk. . The worst possible scenario is that the house may be repossessed and sold by a lender, to recover money owed.

Unsecured debts such as personal loans, credit cards and overdrafts are not secured on your house. This increases the risk for lenders which is why the interest rates are higher on unsecured loans than mortgages.

Many people have the mistaken belief that failing to keep up with repayments on unsecured will not put their home at risk. Unfortunately the legal procedure known as a charging order changes this.

A charging order is a formal order, granted by the courts which allows a lender to secure unsecured debts against a property. So, if you fall into arrears or default on a credit card bill a lender can turn that bill into a loan secured against your house.

A charging order means that a lender can be confident that they will get their money back at some point in the future. This does not mean that if you receive a charging order that you will be forced to sell your house immediately. The obstacles which must be overcome using a charging order make repossessing very difficult and therefore extremely rare. This mean that a lender with a charging order is happy sit tight and await repayment when the house is finally sold.

In summary a charging order does not mean that your house will be repossessed, although it does mean that you cannot sell it until all secured debts have been satisfied. As a result of this, a charging order will mean that any equity you have in your property will be used to satisfy your debts.

The use of charging orders are becoming more popular as latest figures from the Ministry of Justice indicates. In 2000 the number of charging orders granted was 9,207 and in 2007 this figure rocketed by 1000% to an astounding 97,017.

The increase in popularity of charging orders will continue, especially as the credit crunch increases pressure on lenders to get their money back at whatever costs. Couple this with the fact that personal borrowing is at it highest level for years and the amount of personal wealth tied up in properties and it is easy to see why the expected growth of charging orders will continue.

We at Debtwatchdog would encourage everyone who has a lot of debt on their cards to think twice before using it again. It could turn out that a debt consolidation loan, a holiday, new car or even a pair of shoes could result in putting your home at risk.