If you owe money to multiple creditors, you may be wondering ‘how can I write off debt?’. There are a number of debt solutions available that can help you to write off eligible debt, such as Individual Voluntary Arrangements (IVAs) and Bankruptcy.

In this guide, we’ll explore how you can potentially write off debt in the UK, discussing the options available, the eligibility criteria and the pros and cons. 

Is It Possible to Write Off Debts?

Put simply, yes. If your financial situation means you’re unable to pay back what you owe, some or all of your debts may be eligible for a debt solution that writes off included debt. This typically applies when your income and assets aren’t enough to cover your monthly repayments or pay off your balances over a reasonable period.

It’s important to be aware, however, that while insolvency solutions may allow you to write off certain debts, they are by no means a ‘write off debt loophole’. You’ll need to follow a regulated procedure and will likely experience a negative impact on your credit score. If your debt is written off, it will apply to the debt included in the debt solution – you may still have other debts to pay.

In addition to formal debt solutions, there are informal options such as negotiating directly with 

your creditors to accept a reduced payment or settle for less than the full amount. However, creditors are only likely to agree to this if there is very little chance of them recovering the debt. For example, they may agree to write off debt due to serious illness, death or lack of surplus income and assets. As this would be informal, though, you won’t have legal protection if your creditors do decide to take legal action further down the line.  

Debt Solutions That Write Off Debt

There are a number of options that can help write off debt:

Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement (IVA) is an alternative insolvency solution to bankruptcy. In an IVA, your debts are combined into one affordable monthly payment, which you pay over a set period of time – usually around 5 to 6 years. This will be paid to your Insolvency Practitioner (IP) who will keep some for fees and split the rest between your creditors.

IVAs are legally binding agreements so you’re protected from creditors and won’t have direct contact. After your IVA has ended, any remaining debts included in it are written off. 

Debt Relief Orders (DROs)

If you have minimal income and assets, a Debt Relief Order (DRO) could be a good option. A DRO lasts for 12 months and during that time, you’re not required to make any payments towards debts included in the DRO and all interest and charges are frozen. At the end of the 12 months, if your financial situation hasn’t improved, any remaining debt that is part of the DRO is written off. 

Bankruptcy

Bankruptcy is often a last resort if you can’t pay your debts and owe more than the value of your assets. It’s a formal process to get your eligible debts written off and lasts for 12 months. During this time, your money and property will come under the control of your Official Receiver (OR) who will sell any assets to pay back debts to creditors. 

After 12 months have passed, you are typically discharged as long as you have cooperated with your OR and followed the rules and restrictions. At this point, any remaining debt included in your bankruptcy will be written off. 

Sequestration

The Scottish equivalent to bankruptcy is a process known as sequestration and it works in much the same way. If your application is successful, you are assigned a trustee who will deal with your creditors for you. After 12 months, all debts included in the sequestration are written off.

Eligibility for Writing Off Debt

Before you apply for an insolvency solution, it’s a good idea to review your income, assets and debts to determine the best option for you and how much debt can be written off. The eligibility criteria differs for each debt solution: 

Individual Voluntary Arrangements (IVAs)

• You must be a resident of England, Wales or Northern Ireland
• You must owe money to two or more creditors
• You must owe £6,000 or more of eligible debt
• You must have a steady income that allows you to make monthly payments

Debt Relief Orders (DROs)

• You must be a resident of England, Wales or Northern Ireland
• You can’t owe more than £50,000 in total
• You can’t have assets worth more than £2,000
• Your vehicle can’t be worth more than £4,000
• You haven’t had a DRO in the last 6 years

Bankruptcy

• You must be a resident of England, Wales or Northern Ireland
• You must be able to pay the £680 application fee

Sequestration 

• You must be a resident of Scotland
• You must be able to pay the £150 application fee
• You must owe more than £3,000 in total
• You can’t have been made bankrupt in the last 5 years

The Pros and Cons of Writing Off Debt

Entering debt solutions that write off certain debts can have advantages and disadvantages. It’s important to consider both before making a final decision.

Pros

• Writing off some of your debts will allow you to budget effectively without multiple debts and interest charges impacting your monthly income.
• Formal debt solutions offer legal protection, meaning your creditors can’t contact you directly or threaten you with court action.
• For debt solutions such as IVAs where you make monthly payments, this will be a single payment based on what you can afford. 

Cons

• Formal debt write-off solutions will remain on your credit report for 6 years, meaning it can be difficult to borrow or get credit.
• These debt solutions are recorded on a public database, which is the Register of Insolvencies (RoI) in Scotland and the Individual Insolvency Register (IIR) in the rest of the UK.
• You may face restrictions on using credit, borrowing and working in certain positions when you enter a formal debt solution. 

Alternatives to Writing Off Debt

If you’re not eligible or don’t want to pursue a formal debt write-off option, there are other ways you can manage your situation. As mentioned above, you can try negotiating with creditors directly, at least to write off part of your debt. 

Alternatively, there are informal debt solutions available such as a Debt Management Plan (DMP). This is an agreement with your creditors to pay back your debt at a rate you can afford in a single monthly payment. A DMP doesn’t offer legal protection, meaning your creditors can take action against you. However, it likely won’t have the same impact on your credit rating as a formal debt solution.

How MoneyPlus Advice Can Help

If you have debt and are looking into debt solutions, it’s important to get professional advice. Here at MoneyPlus, we can offer tailored support, helping you to find the right option for your situation. Don’t hesitate to contact our money experts. Alternatively, you can get free debt advice from MoneyHelper.