At the Money and Mental Health Policy Institute, we regularly talk to...
Are there legal ways to write off debt?
This page contains information about debt solutions available in England, Wales and Northern Ireland. Debt advice in Scotland involves similar but different solutions. Before considering an IVA as a debt solution, please make sure you fully understand the risks involved when entering an IVA. You can also learn more about bankruptcy on our website.
There are lots of dodgy companies out there that will tell you anything to get your business.
We believe that those people who can afford to repay their debts should do so and we will do everything we can to help them do this. For those who, for whatever reason, find themselves in a position where they are very unlikely to be able to repay their debts in a reasonable time, it may be possible to get them written off, through some form of insolvency or by coming to an arrangement with the lenders.
Below are five possible ways to deal with unamanageable debt. Every situation is different though, so it’s important to get impartial debt advice before deciding on the best way to move forward.
We don’t advocate any kind of debt avoidance.
DRO – debt relief order
DROs are a relative newcomer to the world of insolvency. They were introduced in 2009 as a cheaper alternative to bankruptcy for people with little or no assets and relatively low debts.
There are strict criteria that you’ve got to meet before you can go on a DRO but if you qualify it’ll mean that your debts could be written off after 12 months. If you’d like to know more about DROs check out “Everything you wanted to know about DROs but were afraid to ask”.
If you’ve got quite a bit of debt which you are unlikely to be able to clear it in a reasonable amount of time then it might be worth considering bankruptcy. It’s a way of legally declaring yourself unable to repay and you will then have someone appointed to deal with your finances.
There are serious implications to bankruptcy though. It can mean losing your job, your house and your car (depending on your job and your circumstances). You’ll also have to pay any spare income you’ve got towards your debts for up to three years.
Bankruptcy’s definitely not something to be taken lightly, but it can be a way to deal with a debt problem that is otherwise impossible to get out of. So bankruptcy can be a way to get debts written off, but it isn’t an easy way out and you need to get good advice before deciding to proceed .
You can read more in our beginners guide to bankruptcy.
IVA – individual voluntary arrangement
If you’ve ever seen an advert that mentions a “new government scheme” to write off some of your debts, this is probably the work of a company which wants to sell you an individual voluntary arrangement or IVA These adverts don’t give the full story though. With most IVAs you’ll end up paying every spare penny into it for five to six years. If you own anything valuable you may be made to sell that too.
The plus side is that once you’ve paid in everything you agree to pay when you take out the IVA you’ll have the rest of your debts written off. It will usually take five to six years and involve paying a fair chunk of the debt back, but they can knock years off the time it takes to get out of debt.
If you’d like to know more about IVAs then you should read our IVA guide.
Full and final settlement
A less formal way to get some of your debt written off is to do a deal with your creditors. If you’ve got a lump sum you can pay towards your debts then many companies will be willing to accept a lower amount to clear the debt.
The old expression “A bird in the hand isworth two in the bush” explains why creditors are willing to write some debt off. A lump sum now is better than a trickle of money paid over the years. It’s cheaper for them to administer and they’ll have their money there and then.
It’s important to get full and final settlements agreed in writing before you send any money. That way you’ll have proof the debt should be written off.
Statute barred debts – the limitation act
Many people believe that debts are written off if you haven’t paid anything for six years or more on the account. In reality the debt will still exist, only it won’t be enforceable through the court system. If the debt has already gone through court then this timescale doesn’t apply.
It’s not a good idea to hide from your debts and hope they’ll go away. If you’ve got debts and don’t know how to repay them then you should get help.
Our free, anonymous advice tool Debt Remedy can give you full debt advice in 20 minutes. It’ll provide you with a personal action plan and recommendations tailored to your situation. It won’t write your debt off for you, but it will help you to find a solution that suits your circumstances.