Step-by-Step to Writing Off Your Debt to Become Debt-Free

Len Burgess[1]

Len Burgess

Money Savings Advice the truth about writing off personal debt

Getting a lender to agree to write off your debt isn't easy. In fact, it only happens in very exceptional circumstances. Lenders aren't in the habit of giving money away, so when they offer a loan or credit card, they will always expect their money back.

How Can I Write-Off My Debts?

There are some ways that debt can be written off - either through an IVA or a Debt Relief Order or by going bankrupt. Your name would be added to an insolvency register and you would have to prove you cannot afford the debt.

There are some circumstances in which your debt can be written off. Getting your debt written off isn't easy to do, but it may be possible if there's no way for you to pay the money back and your lender agrees.

Usually, on top of the original debt, you'll also be expected to pay interest. If you start missing payments, other charges and fees may be added. You might find that you've been in debt a while and it feels like it's going on forever. Perhaps you're struggling financially, and can't keep up with your debt repayments?

Read on for more information about getting your debts written off.

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Full or Partial Writing Off

The first thing to know about getting debts written off is that this won't always happen in full. Even if a creditor agrees to write off debt, they might only write off some and not all of it.

Creditors will usually only agree to write off debt if they know that it's pointless pursuing it. They'll need a clear sign that it'll cost too much to start fighting to get their money back. Lenders might write off your remaining debts if it's just too much effort to keep chasing them.

Are Debts Written Off When You Die?

Debts aren't instantly written off if you pass away. In fact, in the first instance, they'll become the top priority.

When you die, debts become a liability attached to your estate. Your estate is made up of your financial assets, including your money and your property. When you die, your will executor must manage your estate and pay your debts.

Your debts and funeral costs must be paid from your estate before any other action is taken. If you've started a wish to pass money on to others, this will only happen with anything that's left when your debts have been successfully paid back.

Upon your death, your will executor must start paying back what you're owed.

Some lenders may show leniency, given the sad situation, and could agree to wipe your debt as a gesture of goodwill. Most, however, will want the money back and will take it from your estate.

Debts are paid back in order of priority, with mortgages and secured debts being more important than your credit cards and unsecured loans. When the money runs out, remaining lenders will write off the debts you can't afford. Debt can't be inherited by those you leave behind, though if you're in enough debt, it could swallow up anything you hoped to give away.

Debts and Serious Illness

Creditors may be lenient and write off a debt if you're seriously ill. They may ask for medical evidence, so you should be prepared to hand this over.

Debt can be written off if a serious illness means that you can't earn an income. You may be unable to work for a long period of time or forced into medical retirement. If your ill health, or disability, means that you're not capable of working, then a lender may decide to write off your debt because it's clear that you can't make repayments.

It's often worth contacting a creditor and asking them to write off the debt, but you must be emotionally prepared for lenders that aren't understanding. Many can seem harsh and unforgiving, even in the face of a terminal illness.

When a Lender Goes Out of Business

You might think that a lender going out of business is sure to get your debt written off. In fact, that's not usually what happens. As part of the closure of a lending business, debts will be sold on to someone new.

Usually, another company will buy the debt for a fraction of what it's worth, giving your original lender some immediate cash. Then, your debt will belong to this new lender who'll take over getting it back.

Freezing Interest in a Debt Management

Many lenders aren't willing to write off your debts but will consider freezing the interest. This means that you'll owe anything you borrowed, plus any interest that has already built up but won't end up getting into any more debt.

Lenders won't freeze interest easily. That's because charging interest is how they make a profit. If you want a lender to freeze their interest, you'll need to make some effort when asking.

Prepare a detailed budget, showing your income and expenditure. This should show how much (or how little) you have left once essentials are paid for.

If your leftover money isn't enough to make the required debt repayments, a lender may freeze interest and offer a payment plan that better fits your financial means. Be aware that going down this route could extend how long you're in debt for; you might pay less overall by freezing your interest, but you'll usually make smaller repayments over a much longer period.

Lenders are unlikely to agree to freeze interest if they believe that you can keep up with repayments. Your budget should show that you're only paying for things that are considered essentials.

Lenders won't take too kindly to a budget that shows you're prioritising holidays, day trips or expensive fashion.

Insolvency and Getting Debts Written Off

Some of your debts may be written off if you're facing insolvency. This might happen if you're unable to pay and are forced into bankruptcy. Debts might also be written off as part of a Debt Relief Order (DRO) or Individual Voluntary Agreement (IVA).

Debt advisors, including debt management charities, can provide more information about your insolvency options. Whilst these can help if you can't repay your debts, there are several drawbacks to consider.

You may lose property like your house or car, and your credit file will be severely damaged. In most cases, your insolvency will also be on the public record.

In 2019, almost 78,000 people started a new IVA – a 10% increase over 2018 and the highest ever number of people applying for an IVA in one year. Since 2019, the number of IVAs granted to people has grown from 47,641 to the 77,964 figure – a massive increase of over 63%.

While the number of IVAs granted to people struggling with debt in the first quarter of 2020 was down year-on-year, expect the figures to rise for the remainder of the year due to the financial hardships people have suffered as a result of the COVID-19 pandemic. More and more people are being declared insolvent and, eventually, having debts wiped out.

Dealing With Debt

In most cases, waiting for debt to be written off is not a realistic solution. Debt can be written off, but whether it will is a different matter entirely. It's very unlikely that any creditor will write off your debt without a fight, and there are very few cases where creditors will decide that the fight will cost more than they'll get back.

If you're struggling with debt, it's best to take action to make your debt easier to manage. Speak to someone that understands debt problems and can help you to reduce your repayments.

How Can Money Savings Advice Help You Reducing Your Debt?

Here at Money Savings Advice, we have partnered with some of the UK’s debt release brokers. They have already helped thousands of people reduce and remove a high percentage of debt, and if you are struggling with debt, they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers, then click on the below and answer the very simple questions.

 

Len Burgess[1]

Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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