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Can you rub out your debts?
We’ve all heard or seen adverts suggesting that it’s possible to get your debts written off. It sounds too good to be true, for one reason. It usually is too good to be true.
In most cases it’s a way of enticing people in debt to take out a formal solution. There have been other less than satisfactory solutions offered by fee charging companies over the years that were less than effective, although many of these have now been outlawed thankfully.
In virtually every case it would be better to come to us for proper debt advice (you can get counselling via our online service Debt Remedy).
So what do they offer? For the most part “debts written off” means either an individual voluntary arrangement (IVA) or assisted bankruptcy.
Let’s look at these two in more detail.
An IVA is a form of insolvency that if you qualify for would see you in a legally binding arrangement with your creditors, overseen by an Insolvency Practitioner. IVAs usually last five to six years and in most cases creditors agree to write off a percentage of your debt.
An IVA is no easy ride and isn’t the best solution for everyone.
Assisted bankruptcy is where a company charges you a fee to help you go bankrupt. Although you can do this yourself if you want, most companies try to charge to help you fill in the official forms.
If bankruptcy is the best option for you StepChange Debt Charity has a specialist bankruptcy team that will guide you through the process for free.
Statute barred
However, there is piece of legislation called statute barred. This refers to the Limitations Act.
This is the only real piece of debt law that could see your debt deemed unenforceable, after a period of six years.
Creditors are unable to legally pursue you for the debt if, after six years;
- The creditor has not already obtained a county court judgment (CCJ)
- You or any one else owing the money (on a debt in joint names) have not made a payment
- You have not written to the creditor admitting you owe the debt
So, I hear you cry, “All I have to do to get my debts written off is ignore the creditors and not pay them anything for six years!”.
Erm no, not really, that wouldn’t actually work.
As the above explanation suggests, if you start to ignore your creditors they’re liable to get in touch with you rather quickly and may even do this through the courts, by obtaining a CCJ or other debt collection procedure available to them.
“Okay, I’ll move house and not tell them!” some might shout.
That really won’t work either as it’s your responsibility to keep your creditors updated with your current address. Moving house and not telling your creditors where you’ve gone is seen as debt avoidance. This isn’t recommended.
The Limitations Act
The Act isn’t there to encourage debt avoidance or non payment and most judges will take a dim view of this tactic. It’s there to protect people from being forced to pay debts that have ‘timed out’ through no fault of their own.
The money owed itself is not written off; it’s still a debt and in reality it still exists, but with the Act in force the creditor can no longer enforce the debt.
The important thing to remember is that there are laws to protect you from being chased for very old debts that you weren’t aware of. However these laws cannot be twisted to help you get away without paying.
We find our clients are genuine in wanting to do their best to repay as much as they can afford to their creditors and at StepChange Debt Charity we want to do our best to give you the correct advice and guide you through the maze of legislation while being impartial and honest at all times.
We come across cases where a client is on a debt management plan with us and out of the blue a creditor they thought they had paid off years ago gets in contact to demand some money.
If this happens to you we can look into the case and give you the best advice for your circumstances. If the debt is genuinely statute barred we can give you all the advice and support you need.
Otherwise the promise to have “your debts written off” is simply too good to be true.
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The comments above, regarding IVAs, are true – but seriously understate the fact that an IVA can be, for very many, a much better solution than an informal debt management plan.
First, debtors who are eligible for IVAs will, generally, pay less monthly than a debtor with the same income and outgoings that opts for a DMP.
Then, the IVA debtor will pay, usually, for five years (and make a contribution from equity, if there is any) whilst the average DMP debtor has a ten year (plus) haul to make).
A person in an IVA has the certainty that interest and charges are frozen, as well as the prospect of considerable debt write-off.
IVAs are fair to debtor and creditor, represent the debtor’s best efforts and provide certaintly and light at the end of the tunnel from the very first day.
Hi Andrew, thanks for the comment.
We don’t say that IVAs are a bad thing (we wouldn’t have an award-winning sister company CCCSVA otherwise!), just that they have been sold indiscriminately in the past. For example, see our list of theadvantages of IVAs, which agrees with a lot of your points.
I have been with the CCCS for just over two years and am now two fifths of the way through my DMP. I have not pair more that I would in an IVA, I still own my own home, still pay the mortgage company, and still can live within my means. The CCCS do NOT take more than I can afford, and I am willing to pay an affordable amount so that my debt, originally about £35K can be paid off as quickly as possible. My interest and charges are frozen on all three of the debts, and I SHALL be debt free in the autumn of 2015.
Thanks for posting, I’m glad that your DMP is working well and you can see the light at the end of the tunnel.
I’m with CCCS on a DMP and I find it much easier to manage now.
But my brother, who had a lot of debt, entered into an IVA with a (to remain) nameless company some years ago.
He eventually found out that the fees the said company took came out of his monthly payments BEFORE anything was paid to his creditors, and the end result was he was paying very little off his debts.
He decided to go bankrupt, this was accepted by the court and his debts cleared. The judge was very dismissive of the IVA company, and suggested that my brother pursue said company for recovery of fees, which he thought had been taken wrongly.
My brother decided that as he had cleared his debts not to pursue recovery of fees as it would involve more finance etc. He wrote off said company’s almost thievery graciously.
JPCootes.
Hi JPCootes and thanks for your comments.
There are fees charged in all IVAs and by all IVA providers but these fees should have been fully explained to your brother before he entered the arrangement. It seems that they weren’t!
Some IVA companies charge upfront fees prior to the approval of the IVA; in cases like this I could see that a judge may have felt your brother had not received the correct advice.
It is often the case that when a debtor has a low surplus and no assets bankruptcy is the fastest and cheapest way to resolve problem debt issues.
Typically most bankrupts are discharged after 12 months and make no more than 3 years’ worth of payments, as opposed to five or six years in an IVA.
JPCootes. There must be something else to the case you refer to above, because on the face of it, it’s nonsense. I’d really like to hear more.
The facts are these. There are two sets of fees in an IVA – the Nominee’s fee, which is for the work done in setting up the arrangement and which is taken from the first payments (up to five, more usually three) that you make into your IVA. Then there is the Supervisors’ fee – which is usually 15% of the money you return to creditors, taken when distributions are made to creditors.
These fees are agreed through something called the IVA protocol, which most providers abide by – so it means fees have become pretty much industry standard – and once you go beyond the first few months, 85% of the fees go to the creditors.
What’s more, if you make all the payments into your IVA, then it’s really the creditors who pay – as your monthly payment is calculated to be what you can afford and the fees are drawn from that and not additional to it.
This, of course, means the consequences of an IVA terminating or failing early can be a problem – because in those circumstances the fees will have been paid and the creditors won’t have had much (and, of course, you’ll be back paying interest).
However, I don’t understand how there can be any circumstances where, if an IVA is possible, that a DMP could be better. The DMP will usually involve a higher monthly payment and a commitment to repay all debt. Even if all interest and charges are frozen this is likely to take 10 years plus, in most cases.
The IVA will be five years, usually, and all interest and charges will be frozen. a substantial reduction in the amount of the principla repaid is also usual – usually more than 30% and often half.
Hi Andrew, as usual, thanks for the comment.
While this part of the discussion is off-topic, there are instances where people will decide to go for a DMP over an IVA (see our article 12 differences between an IVA and a DMP): perhaps when an IVA could affect their job, or if they don’t want to go down the formal route, or if they’re focused on wanting to pay back everything they owe.
We recommend a DMP when the timeframe is appropriate, and the average length of a completed CCCS DMP is significantly less than ten years.
I have an DMP that runs for 19 years. I have asked about IVAs and been told that I would need to sell my house so that the equity can be used. If I do this I will more than likely not be able to get a mortgage again. I am still confused about what is the best option.
my dmp started two years ago an wont finish till 2026 so just a little longer than the ten years????
Interesting reading, would you not be better off taking one year of pain in bankruptcy than 19 years of slog in a DMP? Would be interested to know others thoughts?
Hi I’m in a Iva and have lost my business , I am struggling to pay my Iva , I,ve split from my husband but we still pay the Iva jointly , would I b able to go bankrupt even though I have a Morgage ??
Hi Tracey
The best thing to do would be to speak to your IVA company about it. They will be able to tell you if the IVA is something that you can keep going with and also tell you if bankruptcy might be a good alternative.
Regards
James
I need help with all my debts need them to be all 1 debts as I can’t keep up with them all is this a company that can help???????
Hi Hayley,
We don’t do consolidation loans but we are a charity that gives free and impartial advice to help people deal with their debts. One of the services we provide is called a Debt Management Plan (DMP), where you make one payment to us and we manage reduced payments to your debts. If you would like to see if this would be a good option for you then I would recommend our Debt Remedy service. It takes 20 minutes to complete and will give you customised advice about all the options, including a DMP if one would be a good option for you.
Regards
James
Hello,
I have been chased for a debt that is over 6 years old. According to the Limitations Act, how would I go about sending the letters to the now Debt Recovery Company who have taken on the debt??? The debt was settled many years ago with the initial company, but claim they never receieved the payment. As it was made on my behalf by my parents, finding the proof would take a long time and would be costly (unsure of which card they used- getting copy statements etc.)
How do I go about it?
Hi Paul,
Our friends at National Debtline have a useful tool that helps you put together a letter that you can use if it is over 6 years since you made a payment on this debt: http://www.nationaldebtline.co.uk/england_wales/forms/sample_letter_h.php. If you send this to this debt collector they should leave you alone. If they can provide proof that you’ve made a payment to the debt in the last 6 years then you would need to start looking for proof of the payment that was sent to settle the debt, but hopefully you won’t need to.
Hope this helps.
James
Edgars contacted me after a period of 12 years telling me I owe them an outstanding balance. I was never contacted in the passing years. what stand me to do?
Hi Trudie,
It would depend on what kind of debt they are collecting for and where abouts you live. It was a credit debt such as a loan, overdraft or credit card and you live in England then it sounds like this debt is long past the 6 year limitation period for these types of debt. While this doesn’t mean the debt doesn’t exist, it does meant that it can’t be enforced through the court system (meaning they’ve little power).
Hope this helps.
James
Hi.ive been paying a dmp for 7 years and heard about statute barred. .i live with my parents and work full time. .can i contact my dmp company and claim statued barred as its the debt is over 6 yrs old.thanks
What i meant was if i turn round and say to my dmp and say iam not paying anymore would my creditors come chasing me for the debt ?
Hi there Steve,
What you might be referring to is something called the Limitation Act. this is what applies if a creditor has had a 6 year (or longer) window of opportunity to either a) establish payment with you or b) have a county court judgement lodged against you but failed to do so.
The Limitation Act would probably not apply in your case as you have been making consistent payment on your debt within the last 6 years. to willfully avoid or stop paying your debts is something entirely different and your creditors would be within their rights to take further action against you.
Hope this helps. Write again if you have any further questions.
Best regards
Rachel
I have been paying for nearly 6 years to my 11 creditors – £1 per month, no third party involved. debt over 50k. I don’t think I will ever manage to repay – after six years what happens – can I stop paying or offer a nominal fee as final and full settlement to each creditor. please email back reply. thanks jk
Hi there Jay,
I’ve emailed an answer to your question to the email address you’ve provided.
Best regards,
Rachel
I have been in my present DMP for the past 6 years, I have 4 creditors but not all have frozen interest. I pay £120 per month to my debt advisory line company who then pay my creditors £80 but my balance doesn’t seem to be going down, I have queried this with them but seem to get fobbed off. Can I change company and go to a free agency or will my payments go up? Please help I dont think I will ever be debt free
Hi Deborah,
It’s good news – you don’t have to stay with your DMP company. If you’re in debt you can’t afford a fee – that £40 every month could go towards clearing your debts quicker. My advice to you would be to get free debt advice with an organisation that can provide a fee-free DMP. No-one can guarantee to get your interest stopped BUT if you are getting expert help from a free source your creditors should be more willing to freeze interest. We can help you with this. We need to have a look at your budget to see if a DMP is the best option for you.
You can call our Helpline on 0800 138 1111 or use our online budget tool Debt Remedy
You can always stay with your current DMP company until you know what we can do for you. We’ll then talk you through how to switch over, it’s really simple.
Anymore questions just give our Helpline a ring.
Kind Regards,
Jess
Hi,
Around four years ago, I managed to get myself into some serious credit card debt, and was about to enter an IVA, when I got made redundant by my company. Luckily for me, they were able to help me get a different position (within the same environment) abroad in the GCC. I spent one year in Qatar before moving to Bahrain, where I have been for three years. As a result of the new job etc, although I know it was completely irresponsible, I left the country without settling my debts, or entering into an agreement to pay them.
I am now looking to possibly return to the UK, probably back with my original company. My parents (much to their disgust) occasionally receive a phone call or letter regarding my debts, but I have not lived with them nor been registered at their address in around 14 years, and they always inform them I live abroad. All letters have been sent back unopened.
If I return to the UK – where do I stand? I do not own any property in the UK. I am a British national. I have an offshore bank account with the little amount of savings I have, but nothing else.
I would probably stay with my parents initially, before renting privately from a friend. Will I get chased by the debt collectors as soon as I am put on the electoral register? Will I be able to open a bank account to get my salary paid?
I am completely clueless as to what would happen.
Thanks for any help you can give. Mrs M.
Hi there,
I just want to reassure you that things such as credit card debts are what we call ‘unsecured non priority debts’. This means that they always come secondary to your living costs, and are only entitled to the income that’s left over once things such as rent, food; car expenses and utilities are paid.
With it being quite some time since you’ve made payment on these debts, it’s likely that the balances have been transferred to a collection agency. If this is the case, once again I want to put your mind at rest that these are not bailiffs and do not have powers to remove goods from yours or your parents’ home (it’s also worth noting that your parents are in no way liable for debt that’s in your name). With that said, your creditors are still able to take the debt to County Court and can log a County Court Judgement against you in your absence from the UK. Once they have this they can instruct a County Court bailiff to visit the most recent address they have on file.
The best way you can know where you stand is to have a quick look at your credit file. There’s 3 credit reference agencies your creditors use – Experian, Equifax and Noddle. Experian and Equifax have 30 day free trials that will give you enough time to log on and see what the status of your credit files with them is. Noddle is free for life.
We cannot say for certain if your creditors will chase you once you put yourself on the electoral register or how long it will take for them to restart the collection process. Our stance is that you should always try to pay back the debt that’s owed in a way that’s realistic to your current situation, even if that amounted to £1 per month.
When it comes to bank accounts, it would be a good idea to open a basic bank account rather than a current account. This is because the criteria is much less strict for a basic bank account and you’re more likely to be successful in opening one should you have an adverse credit rating from previous debts.
Yours is a unique situation in that you were given an opportunity to work abroad. Some people mistakenly believe that if their creditors have no opportunity to arrange payment over a period of time that the debt is no longer enforceable. This is a very grey area and does not apply to every person’s circumstances.
I would recommend that once you’re here in the UK that you get in touch with us. We can have a look at your budget and any income you’ll be getting, and figure out from there what you can afford. We can also look at long term options you will have moving forward.
Call us on 0800 138 1111 or try our anonymous advice tool Debt Remedy
Best regards
Rachel
5 years ago in April, the hm revenues said i had been overpaid, i appealed about this and never heard another thing, now 5 years on i have just had a letter from a debt collection company saying i owe this money, what should i do??
hi there Dave
It would be worth contacting HMRC to see what the outcome was of your appeal. if it was decided that you weren’t liable, HMRC should be able to provide confirmation that you can forward on to the collection agency. If however it turns out that you do owe this money, I suggest you get in touch with us and we will help structure your budget in a way that you can get this debt paid off as quickly as possible. We’ll also give you any long term advice as needed.
Best Regards
Rachel
Thank you Rachel, I am totally bemused by the fact that they can contact you 5 years down the road and drop this bombshell, in my opinion this is down to a lack of communication from them, and i see that they are at fault, as i have not moved home, and they could have contacted me at anytime..this is seen by me about putting people in debt, as i was in a better possition 5 years ago to pay this debt off, i will look at getting in touch.