Write off Debt – Explained

Possible Solutions to Write Off Debt

There are a range of insolvency solutions that could see some or all your unsecured debts written off. Here are the ones that are available to people living in England, Wales, and Northern Ireland.

• Debt Relief Order (DRO) - People with lower levels of debt and little assets may be able to get their debts written off.
• Bankruptcy – A form of insolvency that writes off unsecured debts. You may be required to make payments in Bankruptcy, if it is calculated you can afford to do so. This solution involves your assets such as cars or homes possibly being sold to repay debts, the remaining amount is written off.
• Individual Voluntary Arrangement (IVA) – A formal agreement where you make affordable payments to your debts over 5 or 6 years. It also protects assets from creditors and allows for remaining unsecured debt to be written off after the IVA successfully completes.

These insolvency measures have many advantages over trying to make agreements with your creditors yourself. They offer you legal protection that you would not have from negotiating alone.

Debt Relief Orders (DRO)

DROs are aimed at people who have a low income and very little or no assets. As part of this solution, your creditors agree to write off debt if your financial situation doesn't improve in a year.

Can You Write Off Debt with Bankruptcy?

Bankruptcy can write off almost all your unsecured debts, however, the decision to go ahead with this solution should not be rushed. This is because declaring Bankruptcy results in your assets being controlled by The Official Receiver.

The Official Receiver will investigate your assets, and, if considered appropriate, will sell them to repay as much of your debt as possible. Therefore, if you own a home, this could be sold to raise funds for your creditors, however, it depends on the level of equity in it.

Other insolvency solutions such as an IVA which help you to repay what you owe at an affordable rate may be better for your circumstances. If you’d like some more information, you can get in touch via our application form so that we can give you some advice that is specific to you.

How to Write Off Unsecured Debt with An IVA

An IVA is a legal agreement between you and your creditors. It generally lasts up to five or six years and is designed to help you repay what you can through affordable monthly payments. When the arrangement completes, any unsecured debts in the IVA which aren’t repaid are written off.

You can estimate how much debt you could write off with this solution using our IVA calculator. Our customers expect to be able to write off, on average, £10,600* of unsecured debt!

* Average unsecured debt anticipated to be written off for IVAs approved between 1 January 2021 and 31 December 2021 for FSS customers is £10,645.20, based upon successful completion.

The Effect on Your Credit Rating

In theory, if your debts were written off, this wouldn’t have much of an impact on your credit score as what you owe would effectively be paid. However, what would have an effect is the method used to resolve your financial situation.

For example, an IVA will usually be visible on your credit file until 1 year after completion of the IVA and will show your lenders that you’ve had problems repaying what you owe – although you’re taking steps to resolve the matter.

This information will eventually disappear from your file but, in the meantime, you may find it hard to obtain financial products. After your IVA is complete and has been removed from your credit file, you can start to rebuild your credit and may improve your credit score in the long-term.

However, it’s important to note that many people find that having an IVA is a better long-term solution for them than being unable to keep up with their credit repayments.

What debts can you write off?

It’s possible to write off most forms of unsecured debt in an IVA.

Any accounts in arrears which are secured against an asset – for example, a mortgage, usually cannot be written off. There are also a few notable types of unsecured debt to mention which are frequently asked about:

Council tax

Depending on who your local authority is, it may be possible to write off council tax debts. However, as the consequences of missing a payment can be harsh and may escalate quickly, you’ll have to act very fast to find out whether your council will agree to write off debt.

Student debt

Student debt is eventually written off if it isn’t repaid within a certain amount of time. This is generally up to 30 years after you originally took out the student loan and therefore cannot usually be included in an IVA. However, there are exceptions to this rule.

If you are unsure if your type of debt can be included in an IVA contact us so we can help with this.