The truth about bankruptcy
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When you’re struggling with problem debt you may be wondering if you can get it written off. Read our blog to find out.
If you are struggling to repay problem debts you might have seen and been tempted by adverts offering to ‘write off 85%’ of your debt. But, how true is it? Can you really write off 85% of your debts? In this blog we’re going to look at when and how much you’re likely to have written off, if anything at all.
Just a note before we go on. This blog is for those of you living in England, Wales and Northern Ireland. If you live in Scotland, there are different debt solutions available for you. See our information for Scottish Debt Solutions.
Firstly, let’s look at why those adverts say that you can write your debts off. It seems that this was a marketing ploy to get you to sign up to a formal debt solution. And it’s a practice that the industry regulator, the Financial Conduct Authority, more commonly known as the FCA, is putting a stop to, thankfully. Depending on your personal circumstances, some debt solutions may enable you to write off some of what you owe, but how much will vary from person to person – and isn’t guaranteed. And that’s what’s upsetting the regulator – the adverts try to make out that the process is easy and will be a success for everyone.
So what’s the truth about getting debts written off?
If you see an advert stating that you can write off some of what you owe, it’s likely that the solution provider is referring to either a Debt Relief Order (DRO), bankruptcy or an Individual Voluntary Arrangements (IVA) as these are the only debt solutions that may allow any kind of write off of monies owed. However, being able to enter into one of these debt solutions will depend on your personal circumstances and whether you met the eligibility criteria. We’ll start with DRO – a Debt Relief Order.
If you want to enter into a DRO, you’d have to:
· be unable to pay your debts
· have debts under £20,000
· have no more than £50 in disposable income
· have a car valued at less than £1,000
· have other assets less than £,1000
If you met the criteria, there will be what’s called a moratorium, which is a break in payments, for 12 months. After this time, you will be released from your debts, which means you’ll not have to pay anything further towards them – they will be written off.
Now let’s look at an IVA. An IVA is a formal insolvency solution, which means it has serious consequences on your life, especially if you want to borrow money in the future. You should talk through these with a debt advisor before making any decisions. If you want to enter into an IVA, you’ll have to meet these criteria:
· are unable to pay back what you owe in a reasonable amount of time
· be able to make a regular monthly payments towards your debts or you have a lump sum that can be offered in full and final settlement
If you do meet the criteria and decide to enter into an IVA then you’ll be expected to pay what you can afford (after allowing for living expenses) into the IVA, usually for a period of five or six years. After that time any remaining debts included in your IVA would be written off.
The only other way you may get some of what you owe written off is if you enter bankruptcy. When you enter into bankruptcy, which usually lasts one year, you will be released from your debts at the end of that time when you are discharged. But again, you need to meet a set of criteria to be eligible for bankruptcy, which include:
· you must not be able to pay your debts back within a reasonable time
· you owe one or more of your lenders £750, if you wish to make yourself bankrupt and £5000 or more and they wish to make you bankrupt
However, you should bear in mind that bankruptcy is another form of insolvency and much like with an IVA, it can have serious effects on your ability to borrow in the future. When you go bankrupt the official receiver will sell your assets (including your home if you are a homeowner) and put the money towards your debts. You may also have to pay into your bankruptcy for up to three years. At the end of your bankruptcy, again, any remaining debts are written off.
As always, we’d advise that you talk through your options with a trained debt advisor before making any decisions. If you’d like to speak to us, just choose one of the ‘contact us’ links from the left of the page.
Some debts will never be written off
Some debts can never be written off, and the reason for this is because they cannot be included in any kind of debt solution to begin with. These are things like child maintenance payments, court fines, TV licence non-payment or any other criminal fines you have. However, these will be taken into account when you start any kind of debt solution. Your budget for outgoings will include these kinds of debts, so you will always be able to pay them.
Statute Barred Debt
Some people think that when a debt becomes statute barred that means it’s written off – it doesn’t. A debt becomes statute barred when there’s been no contact between you and the lender for a period of six years. During that time, the lender must not have sent you any letters, emails or have called you. And the same goes for you, you cannot have acknowledged the debt or paid anything towards it either. Once the six year time limit is reached, it doesn’t mean that the debt disappears, it simply means that the lender can no longer take you to court to enforce it. But they can choose to chase you for it for as long as they like.
Does it seem too good to be true? It probably is!
Problem debt can be stressful and can leave people in a vulnerable state – which can make them easy prey for people looking to exploit them. If you are contacted by somebody offering you a way out of debt that seems too good to be true, it probably is. The FCA has a register of firms that are regulated to offer debt advice and it also has a list of unauthorised firms that should be avoided
by Shelley BowersBack to blog home