If you have outstanding debts that you are struggling to pay, you may have wondered whether it is possible to have them written off completely.
The good news is, there are several debt solutions out there that can allow you to partially or fully have your debts written off so you can get yourself back on your feet and look forward to a debt-free future. This can help you make better financial decisions and avoid the serious consequences of bankruptcy.
In this guide, we’ll tell you how you can write off debt and which debt solutions are available to help you do so based on your financial circumstances.
Can debt be written off?
In the UK, it is possible to legally write off all or most of your outstanding debt by entering into a debt solution that both you and your creditors have agreed to.
There may even be instances where your creditors agree to write off all your debts without a debt solution in place but this depends on the individual situation and whether your creditors are willing to set aside the money they are owed. This is known as a debt write-off.
But as with most debt solutions, there are rules as to what kind of debts can and can’t be written off.
What kind of debts can be written off?
When it comes to writing off debt, most unsecured debts can be written off but there are different rules depending on the type of debt you owe.
For example, if you have any accounts that are in arrears or secured against an asset, such as a mortgage, they can’t be written off.
You can ask your lender to write off your mortgage debt but it is unlikely they will agree unless you come to an agreement to repay some of what you owe.
Your local council may also be able to write off your Council Tax debt under exceptional circumstances, such as extreme financial hardship, but this can be difficult and is usually only considered as a last resort.
Similarly, debts owed to HM Revenues and Customs (HMRC) for Tax Credit overpayments are rarely written off and, in most cases, you will be expected to repay what you owe.
How can I write off my debts?
There are several debt solutions out there that can help you write off some or all of your unsecured debt, including:
Individual Voluntary Arrangement (IVA)
An IVA is a legally binding agreement between you and your creditors to write off your debts in exchange for repaying a portion of what you owe every month for a total of five or six years.
It can only be set up and managed by a Licensed Insolvency Practitioner who will act as a mediator between you and your creditors to ensure both parties are happy with the proposed terms.
If your financial circumstances allow, it may also be possible to repay your total debt with a single lump sum paid to your License Insolvency Practitioner and split amongst your creditors. This can reduce the length of time you are in your IVA and help you write off your debts sooner.
Debt Relief Order (DRO)
A DRO is another option for writing off your debts and is best suited for low-income debtors with low debt levels and little to no assets that have tried and failed to repay their debt through alternative means.
Similar to an IVA, a DRO also requires monthly payments and protects you from further action from your creditors whilst you are actively making payments.
If you are looking to write off your debts within a relatively short space of time, a DRO usually only lasts around 12 months with your debts written off, or discharged, when you come to the end of your 12-month period.
Debt Management Plan (DMP)
A Debt Management Plan is a debt solution that can allow you to repay what you owe at an affordable rate by making a single monthly payment to your DMP provider who will distribute the money to your creditors.
Your creditors may also choose to freeze interest and extra charges on your debt and cease legal action against you which can help you gain a firmer grasp on your finances.
If you’ve fallen behind on your household and utility bills, you may also be able to add your arrears to your DMP alongside your existing monthly payments to get your accounts back up to date.
Bankruptcy
Bankruptcy is a type of insolvency that can help you write off unsecured debts that you can’t afford to repay.
However, bankruptcy is usually only advised when other forms of insolvency have been attempted as it can have a serious impact on your credit rating and you may be required to give up some of your assets, such as your home or car.
When you complete your bankruptcy, all of your unsecured debts will be written off and you will be free to make a fresh start with your finances.
Can debt still affect my credit score after it has been written off?
If you have missed payments and unpaid debts, your credit score will be affected regardless of whether you have paid them off or are in the process of paying them off. However, how long your credit rating is affected depends on which debt solution you have chosen to write off your debt.
For example, whilst an IVA will usually only last five years, it will remain on your credit file for a total of six years from the date it was approved.
During this time, it will lower your credit score and impact your ability to get a loan, mortgage or further credit.
Similarly, a DRO, DMP and bankruptcy will also remain on your credit file for six years regardless of whether it has been written off and you are technically debt-free.
This is why you must always consider the long-term impact of entering into a debt solution because whilst it will succeed in having your debt written off after a certain period, it will leave a mark on your credit history.
