Debt Cancellation

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

Are you feeling worried about your debts? Do you think they might be cancelled? You’re in the right place to get answers to these questions. Over 170,000 people like you visit our website each month seeking advice on debt solutions.

In this article, we’ll cover:

Understanding what it means to cancel a debt
How debt cancellation impacts your taxes
Ways to possibly write off some of your debt
Reasons why a creditor might cancel a debt
Steps to take to cancel a debt

We understand your concerns about unpaid debts and the fear of dealing with creditors or debt collectors; some of us have faced these challenges too.

Don’t worry; we’re here to help you learn more about debt cancellation and the new laws for 2023 that might help you.

How to Cancel a Debt?

Pay Back in Instalments (Debt Management Plan)

A Debt Management Plan isn’t exactly meant to cancel your debt.

What it is meant to do, however, is to allow you the opportunity to agree to a partial relief program that makes it easier for you to repay your debts.

It usually involves monthly repayments as instalments that you pay over a specified duration.

Also, it offers a unique advantage because your DMP provider will assist you in getting a good deal, negotiating with your creditors, and possibly negotiating a reduction in the total amount you have to pay.

Individual Voluntary Agreement

An IVA is a legally binding arrangement that allows you some freedom over your assets and other financial matters.

It allows you to pay back what you can afford to repay over a period of around five to six years.

If the IVA expires and you still haven’t been able to pay back your debt in full, whatever is left is cancelled, and you’re no longer obligated to pay it.

The only problem is that an IVA has rather strict conditions for qualification.

An IVA will only be valid if the creditors that you owe three-fourths of your debt agree to the arrangement.

Explore Income Opportunities

Something you should definitely be doing as you attempt to get your loans written off is to explore new income opportunities.

Remember, once you get your debt written off, you’ll still have to pay taxes on your debts, so start looking for sources of income as soon as possible.

Remember, it was financial fragility that led you to this situation, so once you get a second chance after cancellation, don’t repeat your mistakes.

Look into a career in freelancing, pick up a side hustle, work an extra shift at your job, or sell things that you don’t need. Do this so you get back on your feet as soon as possible.

Negotiate with Your Creditors

I cannot overstate how important this is when you’re looking to get your debt payments reduced or written off.

The key is convincing them that you can’t pay them back at all in the present.

Once you’re able to convince them that you can’t afford your debt repayments, there’s a good chance that they’ll be willing to cancel your loans, or at least agree to a lower interest rate on your debt payments.

Most people will realise that pursuing someone who doesn’t have much of anything will cost them a lot more money than they’re likely to get out of it.

How a debt solution could help

Some debt solutions can:

Stop nasty calls from creditors
Freeze interest and charges
Reduce your monthly payments

A few debt solutions can even result in writing off some of your debt.

Here’s an example:

Situation

Monthly income	£2,504
Monthly expenses	£2,345
Total debt	£32,049

Monthly debt repayments

Before	£587
After	£158

£429 reduction in monthly payments

If you want to learn what debt solutions are available to you, click the button below to get started.

Get Started

Debt Relief Order

A DRO is another prominent insolvency measure that people use in a pinch.

Here’s how it works: the court grants you a full year where your creditor or debt collection agencies cannot pursue you for debt payments.

The procedure basically grants people one year to get back on their feet and figure out how to make payments regularly.

If the DRO expires and you’re still unable to repay your loans and make debt payments, your loans are officially cancelled.

Consider Bankruptcy

The last debt cancellation option I’ll be discussing here is bankruptcy.

Once you file for bankruptcy and it’s accepted, all your existing debt is written off. Any assets you own are seized from you and subsequently used to contribute to your debt payments.

The great thing about bankruptcy is that it gives you an excellent opportunity to start fresh and unburden yourself from loans that you’re simply unable to pay.

The bad news is that bankruptcy comes with a set of severe financial restrictions and does quite a number on your credit score.

Why Would a Creditor Cancel a Debt?

As for what incentive your creditor could possibly have to cancel your debt, there are actually a few solid reasons why your creditor will be willing to cancel your debt.

Firstly, when you negotiate as clearly and honestly as possible with your creditor, chances are they’ll understand your predicament and acknowledge that it’s very unlikely that they’ll be getting any repayments from you.

In such a situation, they determine that it’s better to consider writing off the debt and move on to other ventures.

Secondly, if you can demonstrate that you don’t have any assets you can use to contribute to repayment, they might see that there’s no point in dragging the whole process out and possibly wasting their money.

Thirdly, if you’ve shown them it isn’t worth their while to pursue you for repayment, they’ll consider either forgiving the debt or, more realistically, agreeing to back off for a specific period of time to let you get back on your feet.

Thousands have already tackled their debt

Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.

Get started

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How Does Debt Cancellation Affect Your Taxes?

You’ll be required to pay taxes on any debts of yours that are cancelled.

The reason behind this is pretty simple. Once your debts are written off, they’re classified as taxable income, and, just like other regular forms of income, are taxed.

That’s why if you’re looking to get your debt cancelled, don’t think you’ll be free from all payments once the procedure is done.

To analyse how much you’re likely to owe on the debt so you’re mentally prepared once you do have to pay tax on the debt amount.

FAQs – All You Need to Know About Debt Cancellation

Can I go to prison for debt?

No. While you can’t go to jail for simply being unable to pay your debts in the UK, you can be jailed if it can be proven in court that you’ve knowingly committed fraud related to your loans.

Why can’t I cancel debt with loans?

If it was that simple, debt wouldn’t be a major issue all over the world. Debt cancellation is a complicated procedure. If you’re looking to keep borrowing more and more to repay older debts, drop the idea. It may sound like a good option, but once you keep borrowing and start having trouble with your repayments, your credit rating will be severely affected, meaning that lenders and borrowers will be unlikely to give you loans in the future, or give them to you at very high interest rates. Also, the more loans you take, the more interest you’ll have to pay back. It’s probable that it’ll build up and become extremely hard to repay at some point.

How long before debt gets written off in the UK?

For most loans, the limitation is a period of six years after your last payment or the last time the debt was acknowledged by your creditor. For some loans, such as home mortgage loans, the limitation period is twelve years.

What is debt service?

It is the amount of money needed to repay the interest and principal amount on a loan for a specific period of time. The debtor is required to calculate the monthly or annual amount required on each individual loan.