If you’re struggling to pay off debts, you’re not alone. We understand how frustrating it can be. We’ve taken a look at your options, including getting debts written off, payment breaks and more - to help you get back in control.
What does writing off debt mean?
When a creditor writes off a debt, it means they agree not to pursue you for payment. Each creditor follows their own guidelines, but they usually only write off debts in exceptional circumstances where there is very little chance of getting their money back in full. For example, if you are facing a long-term illness (mental or physical), are permanently unable to work, or the debt agreement is invalid or fraudulent.
How can a debt be written off?
The first step is to contact your creditors to see if they’re willing to write off your debt. Or ask a debt charity like StepChange to deal on your behalf, as mentioned above.
You’ll need to explain your situation to your creditors and give a valid reason why you can’t afford the repayments. You’ll also need to provide evidence to support this, such as proof of your income and expenditure, for example. Or, you could write them a letter if you prefer. Citizens Advice have a helpful letter template on their website, which you can adapt to suit your situation.
There’s no guarantee that your creditors will agree to write off your debt in full. Each creditor follows its own policies.
As you may already know, creditors only tend to write off debts completely in the most serious situations, where there’s little chance of getting their money back in full. They will most likely want to check if you’ve got any savings or assets that could be put towards your debts.
What if my change in circumstance is only temporary?
If you’re facing financial difficulty due to a temporary change in circumstances, then it’s unlikely that your creditors will agree to write off your debts. An alternative option may be more suitable. Depending on your situation, your creditors may agree to give you a payment holiday. This means your payments are put on hold (usually for around three months).
Make sure you ask your creditors if a payment break will have any impact on your credit score. Also, only apply for one if you really need to, as interest will continue to accrue in the background.
The interest may be tacked onto your future payments, making them more expensive. Or, the length of your credit agreement may be extended to account for it. You would need to discuss the repayment terms with your lender.
Other options could include an affordable reduced payment plan or a temporary freeze on interest and charges. You could consider asking your creditors if they’ll accept lower payments over the next six to twelve months, for example. This is a short-term plan, to help you get through a temporary change (if you are between jobs for example).
Keep in mind that creditors will normally register a default on your credit report after three to six reduced or missed payments. This will stay on your report for six years and can affect your ability to get credit in the future.
Tip: If you don’t feel comfortable dealing directly with your creditors, consider contacting organisations such as Citizens Advice or StepChange. They offer free, non-judgemental debt advice, and can negotiate with your creditors on your behalf.
What documentation do creditors need?
Creditors normally ask for evidence to support your claim for a debt-write off. This will help them to assess your request.
They may ask for proof of your income and expenditure, or medical paperwork such as a letter from a doctor, recent copies of prescriptions, or a Debt and Mental Health Evidence Form, for example. The paperwork they need varies, depending on your individual circumstances and their criteria.
Does writing off my debt affect my credit rating?
When creditors agree to write off debts, they often update the balance to zero and mark the debt as ‘fully satisfied’ or ‘written off’ on your credit report. If they do this, the overall outstanding debt on your credit report will reduce, which should, in turn, have a positive effect on your credit score.
But remember, any pre-existing markers, such as defaults or missed payments will continue to show on your credit file for six years from the date of registration - whether or not the balance shows as zero. Any markers already on your credit report will continue to affect your credit score until they automatically drop off (though the impact they have on your score will gradually lessen in the long run, if you maintain your other bill repayments on time, every time).
In certain circumstances, a creditor may agree to write off part of your debt if you pay them a lump sum. This is known as a full and final settlement, and it will be marked on your credit report as ‘partially settled’. This will stay on your credit report for six years from the date of default or from the day it was partially settled (depending which came first). It could affect your ability to get credit in the future, as lenders will be able to see that the debt was not paid in full, and some lenders may view this as a red flag.
What if a creditor refuses to write off my debt?
If a creditor refuses to write off your debt, we suggest you go back to them to see what else they can do to help.
As mentioned above, you could see if they’ll accept a payment holiday, a reduced payment plan, or ask if they’ll freeze interest and charges for a set period. But remember, paying less than the agreed amount each month may impact your credit score - unless the creditor agrees otherwise. Organisations like Citizens Advice or StepChange can give you free, non-judgemental advice, and help find the best solution for you.
Read on for more tips if you can’t pay your credit card.
What about insolvency?
Going insolvent or bankrupt should be treated as a last resort and is not something to be taken lightly.
It is a legally binding process that will stay on your credit report for six years from the date it as granted, and will seriously affect your ability to get credit in the future. It will also be recorded on a public register and could affect your current or future employment. If you are a homeowner or have any other assets, they could be put at risk of repossession.
Please note, we do not mention all of the pros and cons of insolvency in this article.
In England, there are three main types of insolvency:
1. Bankruptcy can write off debt that you have no means of repaying. It costs £680. You can apply online.
2. An individual voluntary arrangement (IVA) requires you to make reduced payments to your creditors via a licenced insolvency practitioner over five to six years, then the remaining debt is written off after this time. Fees usually apply.
3. A debt relief order (DRO) can write off debt after around twelve months. It’s designed for those with a small disposable income, few assets (not homeowners) and a low level of debt (£20,000 or less). It costs £90 to apply.
Again, we suggest you speak with a debt charity or an Independent Financial Advisor before making a decision. This is due to the deep impact insolvency could have on your financial future.
Are debts written off after 6 years?
There is a common misconception that debts are written off after six years - but this is not true. Debts are not automatically written off after a certain amount of time.
Common unsecured debts like credit cards, loans and overdrafts can become unenforceable after a limitation period of six years. However, the debt still exists, it just becomes statute-barred, meaning your creditor can no longer take any court action to recover the outstanding balance.
A debt can only become statute-barred if:
- you’ve not made any payments towards the debt in six years
- AND you’ve not acknowledged the debt within that time
- AND your creditor has not contacted you in that time
This set of circumstances doesn’t happen very often. If you ignore your debts and don’t maintain your repayments, your creditors will pursue you for payment and legal action may be taken against you. Non-payment will also damage your credit score and reduce your ability to get approved for credit in the future.
Read on for more ways to reduce your debts in 2020.
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