Can I Write Off Debt?

Writing off debt refers to the process where a creditor forgives or cancels someone’s financial obligations. This typically occurs via a form of insolvency like an IVA or Debt Relief Order (DRO).

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If you're struggling with unaffordable debt and your financial situation is unlikely to change, the idea of getting your debt settled or 'written off' probably sounds like a dream come true. This can put a stop to payment demands and threats and allow you to make a fresh start with your finances, but is it too good to be true?

Depending on your financial situation, you may be able to write off all or some of your debts by writing to your creditor directly and explaining your financial situation. Some formal debt solutions can even write off your remaining balance in exchange for making regular contributions towards the debt, meaning you only need to pay a percentage of the money owed.

What is a debt write off?

"Usually, only unsecured debts can be written off as lenders are highly unlikely to write off debts where there's a large amount of money or assets involved."

The term 'debt write off' is used to describe a process that allows you to write off some or all of your outstanding debt. This can be achieved by entering into a formal debt solution and, in rare cases, by writing to your creditor and explaining your financial situation.

However, creditors will only agree to write off your debt without a debt solution if you can't afford to make payments and can prove it would be more worthwhile and cost-effective for them to stop pursuing you for the money owed.

The easiest way to get your debt written off is to enter into a formal debt solution, such as an Individual Voluntary Arrangement (IVA). This can allow you to make regular contributions towards the debt, freeze all contact from your creditors, and write off your remaining debts when your term comes to an end (after five years).

What types of debt can be written off?

Most types of unsecured debt can be written off, but the rules can differ slightly depending on the type of debt you owe. For example, because secured debts (e.g. home and car loans), child maintenance fees, criminal fines, and debt accrued due to fraud can't be included in a debt solution, it's unlikely that you'll be able to write them off.

There are no rules stating that mortgage debt can't be written off, but it's typically difficult to convince a lender to write off mortgage arrears unless you agree to repay all or some of what you owe or can prove you have a disability or illness and your financial situation is unlikely to improve.

Similarly, debts owed to your local council (council tax arrears) and HMRC (income tax) can be difficult to convince your creditor to write off and can usually only be settled if you enter into a formal debt solution or can prove you're experiencing extreme financial hardship.

Can I write off debt?

In the UK, it's possible to get most of your debt written off by entering into a formal debt solution or coming to an agreement with your creditor. However, even if your creditor knows they're unlikely to receive all or some of the money owed, you may still need to convince them that a debt write off is their best interest as well as yours.

Some creditors may agree to write off a portion of your debt if you offer to pay a set amount in a lump sum or regular instalments - this is known as a 'full and final settlement'. For example, if you still owe £5,000 and receive an inheritance of £3,000, your creditor may be willing to accept £3,000 as your full and final payment towards the debt and write off the remaining £2,000.

Remember, everyone's financial situation is unique and whether you're able to get a debt write off debt depends on your individual circumstances. Before entering into a formal debt solution or writing to your creditor, don't hesitate to seek professional advice from a debt adviser, money charity, or debt management company.

How easy is it to get a debt write off?

Depending on the type and level of debt owed, it can be difficult to convince a lender to agree to write off your remaining balance - especially if it's a large debt and you've made payments in the past.

Because lenders have different criteria for writing off debt, some may be sympathetic to your financial situation while others may need further information until they're convinced that it's the best solution for everyone involved. So if you have multiple creditors, a formal debt solution may be your best chance to get the majority of your debts written off.

The likelihood of you getting your debts written off is also significantly reduced if you have assets, such as a vehicle or property, listed on your income and expenditure form. This is because it lets your creditor know that, if it came to it, they could secure the debt to an asset and repossess your belongings to recover the money owed.

Which formal debt solutions can help me write off debt?

There are a number of formal debt solutions in the UK that can lead to a full or partial debt write off, including:

Individual Voluntary Arrangement (IVA)

An IVA is a legally binding agreement between you and your creditors to make monthly payments towards your debt based on what you can realistically afford. When your IVA comes to an end, any remaining debts will be written off and you'll be free to move on with your life.

Because IVAs are legally binding, they can only be set up and managed by an Insolvency Practitioner (IP) who will act as a mediator between you and your creditors and guide you through the IVA process from start to finish.

Debt Relief Order (DRO)

The best debt solution for individuals with debts of less than £30,000 and little to no spare income and assets is generally considered to be a DRO. Once you enter a DRO, your debts will be frozen and your creditors won't be able to demand payment or add interest to your outstanding balance for 12 months.

When your DRO ends, you'll be freed from the restrictions placed on you and any remaining debts will be written off. This can give you a 12-month break from your unaffordable debt and allow you to make a fresh start with your finances.

Bankruptcy

Bankruptcy is a formal debt solution that gives you 12 months of breathing space from your debts before writing off your outstanding balance. Depending on your financial situation, you may need to make regular contributions towards the debt for the duration of your bankruptcy and up to three years after.

This may sound like a quick and easy way to get your debt written off, but you'll be required to hand over control of your assets (e.g. your home and car) to the person handling your bankruptcy, which they can sell to repay the debt.

When will my creditors agree to write off my debt?

There are several situations where a creditor may realise they have little to no chance of recovering the money owed and agree to write off your debt, including:

If you're mentally ill

If you suffer from a have a mental health condition, such as anxiety or depression, you should let your creditor know by submitting a debt and mental health evidence form (DMHEF) completed by a health or social care professional. This will let them know how your mental health condition affects your ability to manage your money and why you're struggling to pay your debt.

Once your creditor receives a DMHEF, they must take this into account and make adjustments to the debt collection process going forward. They must also be more considerate when contacting you about the debt and be more open to discussing alternative debt repayment options with you.

If you're seriously ill

If you have a serious or terminal illness that prevents you from holding down a job or earning a stable income, it can be extremely difficult - if not impossible - to repay your debt. This information should be passed on to your creditors immediately to let them know why you're not paying the debt and why they may not ever receive the money owed.

However, creditors will only agree to write off your debt if your situation is severe and having a serious or terminal illness doesn't necessarily guarantee that your debt will be written off. Most creditors also require proof that what you're saying is true (e.g. medical records) before they'll even consider writing off your debt.

If you're only receiving benefit income

If your only receiving benefit income and you're likely to remain on a limited income for the foreseeable future, your creditors may agree to write off your debt to save them from wasting more time and money pursuing it.

Furthermore, if benefits has been your only income source for several years due to an existing medical condition or illness and you haven't paid a penny towards the debt, your creditor is likely to agree that there's no realistic prospect of them receiving the money they're owed.

How do I ask my creditor to write off my debt?

If you're struggling to repay your debt and your financial situation is unlikely to improve within a reasonable time, you can write to your creditor and ask them to write off some or all of your debt. This can be done in a number of ways but should ideally be done by sending a written letter outlining your financial situation and why you can't afford your repayments.

The letter must clearly explain your reason for not paying the debt (e.g. you have a terminal illness or you only receive benefits) and why it wouldn't make financial sense for your creditor to continue chasing you for payment or hire a debt collection agency to enforce the debt.

However, before you write to your creditor, you must check if the debt is statute barred. Most unsecured debts have a limitation period of six years, meaning your creditor can't take legal action to force you to pay if it's been more than six years since you last acknowledged or paid the debt.

This means that, if you write to your creditor asking them to write off a debt that isn't statute barred, this could count as you acknowledging the debt and the six-year limitation period will be reset. 

Can you write off joint debt?

"In the UK, joint debts operate under the principle of strict and several liability, meaning both parties are equally responsible for repaying 100% of the money borrowed."

The term 'joint debt' refers to unsecured debts that are jointly owned by yourself and someone else - usually a partner or spouse. This could include a mortgage on a family home or a bank loan taken out by a married couple.

In the UK, joint debts operate under the principle of strict and several liability, meaning both parties are equally responsible for repaying 100% of the money borrowed. This means that, if one person can't or won't pay, the other person will become wholly responsible for the debt.

Understandably, the rules surrounding joint debt can be complex and it can be difficult to get a debt written off when more than one person is involved. However, it may be possible to get joint debt written off as long as you can provide reasonable proof that both parties have no realistic way of repaying the money owed.

Will a debt write off affect my credit rating?

If your creditor agrees to write off your debt, it essentially means the debt is settled and you don't have to make any more payments. This won't get the debt removed from your credit record but it can improve your financial outlook.

For example, while the debt will still appear on your credit file for up to six years, it will be marked as 'written off' or 'satisfied' and your balance will be reduced to zero, which can have a positive effect on your credit score and make it easier to get approved for credit.

Remember, any pre-existing missed payments or defaults will still be shown on your credit record for up to six years - even if the debt was written off and your balance has returned to zero. These markers will continue to affect your credit score until they're automatically removed (usually six years after they were registered).

Conclusion

If you have outstanding debts, the thought of having some or all your debts written off can feel like nothing more than a distant dream. But depending on your financial circumstances, you may be eligible for a partial or full debt write off.

There are various debt solutions that can allow you to write off your debts, such as an IVA, DRO, and bankruptcy, but if you're ill or on benefits and your situation is unlikely to improve, your creditor may also agree to write off your debts.

When your debt is written off, it will still appear on your credit file for up to six years alongside any other missed payments or defaults but will be marked as 'written off' or 'satisfied', which can make it easier to access further credit.

Key Takeaways

  • You may be able to get your debt written off by entering into a formal debt solution or writing to your creditors explaining why you can't pay
  • Most unsecured debts can be written off but secured debts, council tax arrears, and income tax debt can be more difficult to get written off
  • Before you ask your creditor to write off your debt, you must ensure the debt is statute barred as writing to them could reset the statute of limitations
  • If you have a mental illness, are seriously or terminally ill, or are only receiving benefit income, your creditor may agree to write off your debt
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