How Does Debt Write Off Work? 2022
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How does debt write off work? In this new guide, we explain the two main ways of getting your debt written off, including a debt write off by your creditor. Learn how to improve your chances of getting a debt written off and download our free letter template to make your request easier. If you have debts you want writing off, you should hear this!
How can you write off a debt?
You could get all of your debt written off if the creditor says you do not need to repay, also known as a debt write off, or if your debt becomes a statute barred debt (too old to be collected).
There are also many debt solutions that allow you to make smaller monthly repayments on your debt for a fixed term. Any debt that has not been fully repaid by the end of the repayment term is written off. We have provided a brief explanation of the common debt solutions that could write off some of your debt at the end of this guide.
Don’t worry, here’s what to do!
There are several debt solutions in the UK that can be used to improve your finances. Choosing the right way to tackle your debt could save you time and money, but the wrong one could cause even more harm.
It’s always best to find out about all your options from a professional before you take action.
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What is debt write off?
A debt write off is when a creditor agrees that you no longer have to repay your debt. The creditor may agree that you don’t have to repay if you can prove you are experiencing financial difficulty and have no viable way to repay.
Your creditor may be more inclined to write off your debt if you are a pensioner, vulnerable adult or have serious medical issues. They may be more likely to write off your debt if the amount you owe is small.
Although some groups encourage creditors to write off debt for people who have no way to repay, no creditor is forced to write off your debts. They could instead choose to keep chasing you for the money, or try to get a County Court Judgment (CCJ) and pursue debt enforcement action, such as using bailiffs.
How does debt write off work?
Debt write off works by you (the debtor) simply asking your creditor to write off the debt you owe. This can be done over the phone or in writing.
To improve your chances of getting your debt written off, you should prove that you cannot make any repayments towards the debt due to your financial situation. This is best achieved by supplying the creditor with an up-to-date monthly budget showing all of your income and essential expenses.
If you are a vulnerable person or have health issues, you may want to send proof of this to the creditor as well.
Ask for a debt write off with our free letter template
Finding the right words to ask for a debt write off can be difficult, which is why MoneyNerd has made it easier. We have created a free letter template asking for a debt write off in a professional way.
You can download this letter template here and simply add your own details. Send it off with your monthly budget to improve your chances of getting your debt wiped.
Can you really get debt written off?
It is possible for you to get your debts written off by the creditor. However, it is rare for a creditor to agree to write off your debts, especially if you are not a vulnerable person and owe a significant amount.
To maximise your chances of getting your debts written off, you should provide them with a detailed monthly budget that illustrates your inability to make repayments. If they still reject your request, you may want to offer the creditor a token £1 monthly payment until your financial situation improves.
The more likely way to get a debt written off is when it becomes too old to be collected as per The Limitations Act and is officially known as statute barred debt. Read on for more information on debt that is too old to be recovered by the creditor.
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How long before debt gets written off?
Many debts become legally unenforceable after six years or after five years in Scotland. As long as you have not made a payment towards your debt or acknowledged that you owe the debt during this time, the debt becomes unenforceable and you do not have to pay. This is known as a statute barred debt.
Because the legal system was getting overwhelmed with older debt cases, they decided to put a time limit on how long creditors get to chase a debt. After this time limit, the creditor cannot ask a judge for a CCJ forcing you to pay, so there is no legal reason for you to repay. However, if you have already been issued with a CCJ to repay the debt, it can never become legally unenforceable.
Once a debt becomes statute barred, the creditor should not chase you for any more payments. If they ask you for a payment, you can reply to let them know the debt has become too old to be collected and you will not be making any payments. Always get confirmation that a debt is in fact statute barred first. You can get clarification from a debt charity, such as StepChange.
If they continue to chase you for payment, you could report them to the Financial Ombudsman. Reason to uncover what happens when you write off debt.
What happens when debt is written off?
When a debt is written off you no longer have to repay the debt. But that doesn’t mean the debt simply disappears. The debt will be recorded as unpaid or partially paid on your credit file. This is the case whether you get a debt write off from the creditor or whether the debt becomes statute barred.
Does writing off your debt affect credit rating?
Writing off a debt will negatively affect your credit score. When you write off a debt, the credit is recorded as only partially repaid on your credit file and your credit score is reduced. This will make it difficult to get approved for further credit in the future, until the record drops off your file (after six years) or your credit score improves.
Writing off your debt with debt solutions
Debt solutions are methods of repaying your debt in ways that do not cause financial hardship. Some debt solutions can even be used to write off all or some of your debt at the end of the process. Here are some examples:
- Debt Relief Order (DRO)
A Debt Relief Order is a debt solution suitable for people with little monthly disposable income and no valuable assets. It stops all your creditors from asking for payments for a whole year. If your finances have not improved to the point you can afford repayments after the 12 months, then all your debt is written off immediately.
- Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement is a debt solution available outside of Scotland for people with multiple debts of a total significant amount. It is a legally binding agreement for you to make a single payment that gets split between creditors for a typical period of five years. At the end of this period, all remaining unsecured debt is written off.
However, IVAs have a more complex finalising period that may involve remortgaging and are not guaranteed to be approved.
- Protected Trust Deed (Scotland Only)
A Protected Trust Deed allows you to make more affordable repayments to creditors for four years. The agreement has a debt write off applied at the end of the repayment terms. Whatever has not been repaid when the four years are up will be written off by each creditor. This is one of the most common debt solutions used in Scotland.
How does debt write off work? (Recap)
A debt write off works by you (the debtor) asking your creditor to write off your debt because you cannot afford repayments. It is rare for the creditor to agree to wipe your debt, but they may be more inclined if you prove you cannot make any repayments by sending your monthly budget.
You have an even better chance of getting your debt written off if you are a pensioner, unemployed, vulnerable adult or have serious health issues.
Get further help tackling your debts
Unlock further help tackling your debts and more information about wiping your debt here at MoneyNerd. We have lots more information to share with you about getting out of debt. And don’t forget to seek free debt support from a charity that can advise you on the most appropriate debt solution for your circumstances.
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