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Is it possible to write off debts?

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Is it possible to write off debts?

 

Can debts be written off? Your creditors can write off some debt, however, each individual circumstance is different. 

It can also depend on the approach you take to dealing with your debts.

Is the pandemic causing financial hardship?

Many are struggling with debt because of the coronavirus, but solutions are being wheeled out. 

Your credit files might not record default notices or missed payments that have been caused by the impact of the coronavirus pandemic. Temporary payment holidays for mortgages and credit cards, changes to overdraft charges, help for renters and the extension of the moratorium period for debts in Scotland have all been brought into the equation.

Can debt be written off?

Many people cannot afford to pay anything towards their debt. Some are unable to work while others have a terminal illness. Every situation is different. 

In such circumstances, you could ask your creditors if they would be willing to write off your debts to them. There are a number of factors that could persuade a creditor to agree to this. These include if: 

▪️they can see you will not be able to get your repayments

▪️they feel that you do not have assets of a high enough value

▪️you can make a case that demonstrates why it isn’t viable to pursue the matter any further

Obviously, creditors are not pushovers. They will only write off debts in the most serious situations and they will want legitimate proof for any mitigating circumstance. Some medical information, for example, could make the difference.

Alternatively, creditors might give an extended time frame to a debtor that is legitimately struggling to pay their debt. This means that they wouldn’t write the debt off but they would give them some time to sort themselves out. 

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Does writing off debt affect your credit rating?

Ordinarily, your credit history will be unaffected if your debt has been fully written off. Unfortunately, if you’d missed any payments, paid less than the agreed amount, or the account had defaulted, before you paid off the balance, that will be on your file for six years.

Sometimes, creditors can choose to write off part of a debt if you can pay off the remaining amount over several months or, alternatively, as one lump sum. The technical term for this procedure is a full and final settlement; it will be listed as a partial payment on your credit file. 

Of course, creditors do not have to accept your offer. They are more likely to accept . However, creditors will usually agree to a partial settlement as they will not want to write off the whole amount. 

Do creditors change their demands if the client has severe mental health issues?

If mental health is playing a role in your inability to pay off debts then you should probably let your creditors know.

Health or social care workers can fill out a debt and mental health evidence form (DMHEF), highlighting your struggles, and that form can be sent off to your creditors. This form authenticates your mental health problems and it may affect how the creditors decide to pursue their claim. 

Using insolvency to write off debts

If you want a solution to your unaffordable debts, there are many insolvency debt solutions which may be well. These include:

England, Wales and Northern Ireland

▪️ Bankruptcy

▪️ Debt relief order (DRO)

▪️ Individual voluntary arrangement (IVA)

Scotland

▪️ Sequestration, or Scottish bankruptcy

▪️ Protected trust deed

▪️ Minimal assets process (MAP) bankruptcy

There are many advantages to insolvency measures. Creditors cannot do anything more to get their money back because the agreement is legally binding. 

On the other hand, there’s a risk that you could lose valuable assets and some of these insolvency measures also require a start-up fee. Alongside this, your credit file will be seriously affected. 

But there are drawbacks too – some insolvency measures require fees and there’s a risk of losing assets such as your house or car. All insolvency measures will have a serious effect on your credit file.

Financial Advice

If you need advice on how to deal with your debts then please get in contact with us. Call us at 0800 088 2303

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