Have you ever heard the term debt forgiveness? It is something a lot of people in debt ask about, hoping it is a loophole to get out of debt without paying.

We explain debt forgiveness here and how it is not entirely the same as when you wipe your debts with debt solution services. 

What Is Debt Forgiveness?

Debt forgiveness is when the creditor or company you owe money to will tell you that you don’t have to pay all or a percentage of the money you owe. It is a term that is mostly used in the USA but has started to be mentioned in the UK as well. 

Debt Forgiveness Vs Wiping Debt

You may be wondering what the difference between debt forgiveness and wiping debt is. The answer is that there is not really much difference. 

The only subtle difference is that debt forgiveness is something agreed on by the people you owe the debt to. On the other hand, wiping debt is something you can achieve independently not always with the blessing of your creditor. 

For example, you might wipe debts through activating the Statute Barred loophole, a law that says you don’t have to pay back older debts. In this case, your creditor hasn’t given you debt forgiveness exactly, but you have managed to avoid having to pay your older debts. 

Examples of Debt Forgiveness in the UK

One of the best examples of debt forgiveness in the UK is through debt settlement offers. This is when someone in debt cannot pay back the full amount they owe, but they can pay back a big percentage of it.

For example, you might have a debt of £1,000 and can only afford to pay £800. You could agree on a repayment plan that pays the full amount and more over many months or years, or you could offer a debt settlement offer of £800 and have the debt cleared.

In the debt settlement offer scenario, you have received debt forgiveness on 20% of the money you owed as you no longer have to pay the additional £200.

To get debt forgiveness like this, you would need to be in a position to offer a debt settlement offer, which is usually 75%+ of what you owe. There is no guarantee that the offer will be accepted. 

Debt Forgiveness and UK Student Loans

Another example of debt forgiveness can be found in the UK’s student loan repayment system. At the time of writing, and not expected to change, graduates can get debt forgiveness on the amount they have yet to repay back after so many years.

But when your student loan received debt forgiveness depends on when you enrolled in university. Whereas some people have to wait until they are 65 years old, younger generations will receive student loan debt forgiveness 25 or 30 years after they graduated. 

This is why it can be unwise to make voluntary contributions to repay your student loan unless you have a high-paying job. 

Can You Get Debt Forgiveness Another Way?

There are other scenarios when you may receive debt forgiveness in the UK. One is if your bank or lender decides not to peruse the debt. This may happen in rare circumstances that are personal to you or because the bank has made an error.

For example, if you have been diagnosed with a terminal illness, unsecured debts could receive debt forgiveness – but it isn’t guaranteed. To get debt forgiveness for this reason or because you received an unprofessional service, you would have to speak with your bank or lender directly. 

How Common Is Debt Forgiveness?

Debt forgiveness is not very common. The bottom line is that any creditors and lenders usually want their money no matter what. It is much more common to wipe your debts using various measures than it is to access debt forgiveness. 

Three Possible Ways to Wipe Your Debts

You might not be able to get debt forgiveness, but that doesn’t mean you can’t wipe some of your debt. Here are the most common ways people wipe their debts in the UK:

  1. Statute Barred Loophole

Statute Barred debt is when a debt has become too old to be collected. The reason it becomes too old for collection is because the courts refuse to judge on older debt cases because they are simply too busy with new ones. 

These debts aren’t exactly wiped but they are no longer enforceable with the law. And without the law on a creditors side, they cannot collect the debt or threaten to use bailiffs. 

  1. Individual Voluntary Arrangements 

An Individual Voluntary Arrangement can be used by people with significant debts, usually multiple debts totalling above £15,000. In summary, it is a legal agreement to pay all creditors back each month through one payment which is divided between them. This goes on for five years and any money still owed at the end will be wiped. 

Sometimes an IVA can wipe up to 85% of your debt!

  1. Debt Relief Orders

A Debt Relief Order is a debt solution for people on a low income or without employment. If you just have enough to get by – or not enough – and have debts below £20,000, you can apply for a Debt Relief Order. 

This order will block people chasing you for money for one year. After the years comes to an end, all your debt is wiped if your finances haven’t improved. 

Where Can I Find Out More?

If you want to learn more about the debt solutions that can wipe your debts, why not head to MoneyNerd. We have compiled hundreds of articles to help people in debt, and none of them are written to confuse you. 

Visit MoneyNerd now for more information!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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