How To Legally Write Off Debt in 2022 in the UK

‘Write off debt that you owe and regain your financial freedom’ is a working mantra now for many UK residents who are getting their unmanageable debts written off.

If you’re suffering from debt, it can be easy to feel like there’s no way out of the mess you’ve created. Debt consolidation, bankruptcy and debt management plans might seem like your only options. Still, there are other ways to erase your debt legally and keep your credit score intact. This article will give you a good overview of how personal debt write off works in the UK financial system. You will also understand what your options are in the United Kingdom if you need help erasing your past financial mistakes.

It is also important to keep in mind that the debt solutions available in the market cater to a range of different debts. But whether creditors agree to write off a part of your unmanageable debt, or even all of it, will depend on your financial situation.

Before finalising any debt solution that promises to write off debt that is distressing you, you should always consult a trusted debt adviser.

Declare yourself bankrupt to write off debt

For England, Wales and Northern Ireland

You can declare yourself bankrupt in the UK to write off debt that you have accumulated. Bankruptcy is a legal status that gives you protection from your creditors. This means they can’t take any action against you and can’t get anything out of you at all. The problem with bankruptcy is that it’s not always effective, even if it gets rid of most debts.

Bankruptcy is a form of insolvency that writes off your unsecured debts if you are in no position to repay them. In such a case, any assets you have, which could be a house or car, may be sold so that your debts can be paid.

You have understood better here that bankruptcy is one way for individuals to deal with debts they cannot manage or pay. It is not applicable to companies or partnerships. This process shares your assets with creditors you owe money to and also gives you a chance to start afresh free from debt (with some restrictions).

You can be made bankrupt for three reasons:

A bankruptcy order can be issued for either one of the below-mentioned reasons:

You just cannot pay whatever you owe and want to declare yourself bankrupt.

Your creditors take the decision and file an application to make you bankrupt as you owe them £5000 or more.

An insolvency practitioner (IP) decides to make you bankrupt as you’ve broken the terms of an individual voluntary arrangement (IVA) you had with your creditors.

There is also the point that if you live in Scotland or Northern Ireland, you cannot declare yourself bankrupt in England or Wales.

Get a Debt Relief Order (DRO) to write off debt

For England, Wales and Northern Ireland

A debt relief order (DRO) is a way forward for you to have your difficult debts written off. A DRO is helpful if you have accumulated debt that is relatively low and also have few assets.

If you can’t afford to pay your debts, DRO is a good way of dealing with it. With a DRO in your name, you don’t need to pay some categories of debt for a particular period of time (usually 12 months). Once the DRO term ends, the debts included in it get written off (discharged). You don’t have to pay any debt now.

Enter into an IVA to write off debt

For England, Wales and Northern Ireland

You can enter into an Individual Voluntary Arrangement (IVA) and get a debt write off at the end of the IVA term.

The IVA is a legally binding financial agreement that you make with your creditors. If you are struggling financially and need more time duration to pay off your unmanageable debts, IVA can be another helpful option. After entering into an IVA you can take control of your debt situation. You can have reduced monthly payments and get extra time to pay back what you owe. In this formal agreement, you get to make an affordable monthly payment for your debts, usually over a period of five or six years. There is also the option of making a one-off payment, so your IVA lasts for a shorter time duration.

Choose sequestration or Scottish bankruptcy

For Scotland

You can choose sequestration which is a form of insolvency that writes off your unsecured debts if you have a problem repaying them. Choosing this Scottish bankruptcy option would mean that any assets you possess, like a house or car, could be sold to pay off your stressful debts.

With this option, you can be debt-free in a shorter period of time. Any unsecured debts you may have are usually written off. Your creditors won’t chase you for the money you owe them.

Enter into a MAP bankruptcy to write off debt

For Scotland

You can be eligible for Minimal Asset Process (MAP) bankruptcy if you have minimal assets, can pay your living expenses and have no debts that are more than three years old (or five years old if it’s a business loan). This process, known as MAP bankruptcy is an increasingly popular alternative to a traditional bankruptcy.

MAP bankruptcy is a formal legal process, but you won’t need to appear in court. It costs £90 to apply for, which is much cheaper than sequestration. With a MAP bankruptcy, you’ll usually be discharged from it after six months. After this duration, most of your debts will be legally written off. Approval of this bankruptcy means your creditors can no longer chase you for any pending payment or add more interest or charges to your debts. You will find that most unsecured debts are included in this MAP bankruptcy option.

Enter into a Protected Trust Deed

For Scotland

You can choose to enter into a Protected Trust Deed and make affordable payments over four years. Once this duration is over, any remaining unsecured debts you may have are written off. An Insolvency Practitioner (IP) takes care of your Protected Trust Deed and helps you arrange repayments to your creditors over four years.

Once your trust deed is approved, your creditors will not be able to chase you for any payment. They will not take any court action also. Choosing this debt management option means you may have to sell some assets but get to keep one vehicle worth less than £3,000.

All these insolvency options have different advantages and disadvantages. You get to make agreements directly with your creditors to write off debts. Each of these options is legally binding. Creditors who are part of the solution you choose, go ahead and accept the terms and conditions of the debt payment just as you do.