A loophole in loan agreements which would have allowed a Cheshire couple to write off their £40,000 debt has been closed by judges at the Court of Appeal.

They said the result "will affect other cases in the current spate of consumer credit litigation and potentially many other credit agreements".

However, consumers have used various routes to try to wipe off debt, and only one has now been seemingly cut off (see the Write-off your debt? guide).

The claimants, Michael and Suzanne Walker, fell into arrears after they remortgaged their home and faced repossession until a county court judge ruled in April this year their credit agreement was unenforceable.

This meant they wouldn't be chased for the existing debt.

But instead of the Walkers enjoying a "windfall", they now face losing their home in Sandringham Close, Winsford, and legal costs from the loan company of £100,000.

The appeal judges said the ruling at Cheshire County Court had led to a "spate of consumer credit litigation" and the lenders, Southern Pacific Personal Loans, had faced more claims of irrecoverable loans from other borrowers.

Wrong decision

Lord Justice Mummery, giving the ruling of the three appeal judges, said consumer credit law is complicated and county court Judge Halbert got it wrong when he found the debt unenforceable.

He said the Walkers signed the loan agreement in 2005 for a sum of £17,500 secured on their home and were now in arrears which top £40,000.

"For their part SPPL said that if the (county court) judge was right, the Walkers would stand to gain a windfall of over £40,000 and the clearance of the second charge on the property. SPPL would be faced with the prospect of cases of irrecoverable loans made to other borrowers."

The appeal judge said the case turned on whether the loan agreement correctly stated the amount of credit to comply with consumer credit legislation.

Although the amount of credit was £17,500, a "broker administration fee" of £875 was added to the total and this led to the challenge because if the amount of credit is incorrectly stated, the agreement is unenforceable.

When the Walkers appealed during earlier repossession proceedings, Judge Halbert held the loan was unenforceable and ordered the discharge of the charge against the property.

Further reading/Key links

Debt write-off: Can you write-off debt?
Get help: Debt problems