While this might sound like a dream come true, for many in the UK, it’s now a reality.
Did you know that every year thousands of Brits enter into some form of government debt help scheme? The result is often a huge portion of current debt being written off.
Intrigued?
Then keep reading as we break-down the best way to write off debt, including all the possible benefits, potential risks, and how you can get started immediately.
How To Write Off Debt?
Each comes with its own set of advantages and disadvantages, so it’s important that you take the time to weigh each up against your personal circumstances.
Of course, whichever solution you opt for, it’s always better to act sooner rather than later.
Why?
Continued failure to repay your debt and the arrival of debt collectors or bailiffs at your property to reclaim the money becomes inevitable. In extreme cases, jail time is also possible.
While for most, this is an unlikely endpoint, it does show the harsh reality of continuing to let your debts build, unaddressed.
The good news is that you can get started fixing things right away. In fact, by the time you’ve read through this guide, you’ll be equipped with all the info you need to turn the tide on your financial woes.
So let’s get right to it, here’s a breakdown of each of your options…
Please note: The following information relates to debt solutions that are available in England, Wales, and Northern Ireland. For those in Scotland, the available solutions are different.
Option 1: Bankruptcy
For a one-off fee of £680, you can declare yourself bankrupt.
Once you’re declared as bankrupt, an official receiver will assume control of your estate and your debt will be written off. This can help remove some of the financial pressures you’re facing, and is in many ways a ‘fresh start’.
Unfortunately, this will make it difficult to take out credit. Your home and some possessions may also have to be sold, and a notice of your bankruptcy will be made public.
Option 2: Debt Relief Order
A Debt Relief Order (DRO) is essentially a simpler version of bankruptcy. It’s designed for people who wish to write off debt but have a low income and relatively few assets to their name.
As such, to qualify for a DRO there are strict limits:
- assets that total no more than £1000 (this is £300 in Northern Ireland)
- a car that is worth no more than £1000
- less than £50 in disposable income, per month
- total debts that amount to £20,000 or less (this is £15,000 in Northern Ireland)
If you meet all of these criteria, a DRO can be declared and after one year, the debts that were originally listed in the DRO will be written off.
DROs can be a highly effective option for certain people. But what if you are able to make some repayments on your debts and also wish to protect your current assets?
While not possible with the first two options, this is something you can achieve with an Individual Voluntary Agreement (IVA). Here’s what you need to know…
Option 3: Individual Voluntary Agreement (IVA)
If you have over £5000 worth of unsecured debt (such as loan, credit cards, overdrafts, benefit overpayments etc), you can consolidate all of these into one low monthly payment, which is based on what you can realistically afford. All while protecting your assets.
For many people, this is the most desirable option, and so is where we focus for the rest of this guide.
Is an IVA an Official Government Debt Help Scheme?
We’re often asked if an IVA is a legitimate debt solution, or part of an official government debt scheme?
The answer – yes!
An IVA is a part of a government scheme to clear debt. It’s a formal alternative that is used to avoid bankruptcy and can result in your debts being written off. In fact, IVAs are becoming more and more popular in the UK, and for good reason. As well as protecting your assets, they’re also 100% confidential.
But to make sure that you’re making the correct choice in exploring an IVA, we strongly suggest that you consult professional advice for information tailored specifically to your circumstances.
So How Does an IVA Work to Write Off Debt?
An iva is presented to the creditors of the debtor via an Insolvency Practitioner, as a formal repayment proposal. Insolvency Practitioners are regulated by the Insolvency Practitioners Association (IPA).
This iva is a contractual arrangement with creditors and can be flexible in the same way that an individual’s circumstances may be. As such, the base of an iva can be capital, third party payments, income, or any combination of these.
You might be wondering what that actually means for you. We know that sometimes debt guidance can get a little heavy on the technical jargon, especially when considering the technicalities of credit card debt, average credit card debt, government debt consolidation loans, new legislation to write off debt and credit card debts.
Fear not, we’re all about keeping things simple so you can fully understand your financial options. So here’s an outline of what you can expect if you choose to pursue an iva to write off debt:
The IVA Process
- your advisor will run through your income and expenditure
- your advisor will work out allowances for your general daily spending and money to cover your bills
- you agree to contribute your remaining money to the iva – this must be a minimum of £80 per month, for a period of 60 months
- your iva proposal is discussed at a creditors’ meeting and a vote is taken on its approval
- if at least 75% (in value) of the creditors vote to agree, the government will formalise the agreement and you will enter into an iva
- when the agreed terms are completed, the rest of your debt will be totally written off
- you officially become debt-free!
What About My Credit Rating?
Debt it is completely removed from the record, from the date it was written off. On your credit history, it will show as paid/paid in full. If you have missed any payments on this debt, they will show on your credit file for six years.
Criteria, Advantages & Disadvantages of an IVA
Like with everything, there are both advantages and disadvantages to an IVA. You can click the link for our full deep-dive on all the aspects that you may wish to consider, or keep reading for a summary of the most notable.
Pros of an IVA:
- you can become completely debt-free
- get your debt written off
- your creditors will not be allowed to contact you
- one low payment
- protect your house and car
- no stigma of bankruptcy
- keep your pension
- all of your interest will stop
- no more charges
- no setup costs
Cons of an IVA:
- not everybody is eligible
- you will be asked to make a monthly payment
- you may have to release equity in your house
How to Choose an IVA Company to Write Off Debt
As there are several companies that offer IVAs, there’s a lot to consider. That’s why we’ve produced a full, detailed post on exactly what to look for in an IVA company.
Broadly speaking, we will choose a company that:
- charges no upfront fees
- scores highly on independent review sites
- offers low monthly payment rates
- is well established in the industry
- has a strong online presence
Of course, debt issues can vary greatly from person to person, which is why we don’t advise you to look at only one company for a debt solution. It may lead to biased advice and/or overpayment.
That’s why we advise you to contact iva Advice to do the hard work for you and help to determine the best company for your needs.
Why Speak With Us About Debt Write Off?
Many people struggling with debt say that it causes them significant distress and that they don’t know how to deal with their financial issues. In fact, 50% of people in debt have a mental health problem.
That’s why we’re here.
We can help you to make the best decisions for your personal circumstances and assist you in achieving debt write off as soon as possible.
How Can I Get Started With a Debt Write Off Plan?
Use our FREE online calculator to find the best company for your circumstances, then submit your documents to them electronically and get debt write off help, quickly and easily.
Alternatively, give us a call today on 0330 1228447 for no-obligation advice.
Jonathan Michaels
Financial Advisor at IVA Advice
I am a CII Advanced Diploma Financial Advisor with over 15 years of experience working with FCA Regulated Finance Companies in the insurance, credit card, loan and debt industry.
I am very familiar with The Civil Enforcement Association and the High Court Enforcement Officers Association and I have written extensively on Financial Services matters.
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Frequently Asked Questions
Q. Can a debt be written off?
Debts can be written off formally through an Individual Voluntary Arrangement (IVA). This applies to people who have £5000 or more of unsecured debts: such as loans, credit cards, overdrafts, payday loans etc.
Q. Can I go to jail for debt?
It is unlikely that you will end up in jail for not paying your bills on time. It is more likely that your creditors will instruct bailiffs or debt collectors to try to reclaim the money.
Q. Can the Government write off my debt?
Debts can only be written off formally through either bankruptcy or insolvency.
Q. What happens if you write off debt?
When you write off debt it is completely removed from the record from the date it was written off. On your credit history, it will show as paid/paid in full. If you have missed any payments on this debt, they will also show on your credit file.