Time orders

After service of a notice of sums in arrears or a default notice, the borrower can apply for a time order. [1]

Applications for a time order should be made in the statutory form by means of an application to the sheriff court.[2] Applying for a time order is not straightforward and it will be necessary to have the representation of a solicitor or an experienced, specialist money adviser. It is important to identify situations in which a time order will be competent in law and useful in practice and to refer the borrower to a solicitor or a specialist adviser when appropriate.

If the borrower is applying for a time order after receiving a notice of sums in arrears, s/he must first send her/his lender a notice of intent. This notice should:

• inform the lender that the borrower intends to apply for a time order, and

• inform the lender that the borrower wants to make a payment proposal to the lender  and

• give details of that proposal. [3]

The borrower must then wait 14 days before applying for a time order. [4]

If the time order is granted before a calling-up notice, a notice of default or a section 24 application (all under the Conveyancing and Feudal Reform (Scotland) Act 1970) is served on the borrower, the lender will not be able to use any of them to force a sale.

If, on the other hand, the borrower does not lodge a time order application in response to the default notice, and the lender proceeds under the 1970 Act, a later application for a time order will not stop the lender from obtaining the power to sell the property. In this instance the borrower may be advised to apply for a section 2 order. For more information, please see the section on suspending enforcement action.

If granted, a time order allows the borrower time to pay by rescheduling the loan over a longer period of time. Both arrears and future instalments may be subject to a rescheduling.

When considering a time order application, a court also has the power to vary the terms of a consumer credit agreement, for example to reduce the rate of interest or to order that no further interest be payable. Courts can be asked to find that following the time order, interest will accrue only on the arrears due at the time of the hearing, and can be asked to fix a new interest figure for the balance outstanding.

Whilst a time order is in force the lender cannot terminate the agreement, recover property or enforce a security.

The borrower will have to show why it is justifiable to vary the agreement. [5] Until relatively recently there had been little guidance on the circumstances in which it would be 'just' to make a time order. It is now clear from a decision by the English Court of Appeal [6] that this will involve a consideration of all the circumstances of the case, and of the position of both the lender and the borrower. Relevant factors include:

• the conduct of the borrower in taking out the loan, for example was s/he feckless or foolish in taking on any further commitments

• the borrower's payment history

• the degree of blame which is attributable to the borrower

• the conduct of the lender, for example is the interest rate unreasonably high.

Courts are likely to view the time order as a temporary arrangement.

In the same case the English Court of Appeal stated that 'when a time order is made it should normally be for a stipulated period on account of temporary financial difficulties'. [7] The court took the view that if the borrower was unlikely to be able eventually to resume payments at the agreed contractual rate, a time order should be refused and the lender allowed to enforce the original agreement.