07 Apr 2021

How to write off debt

When you’re struggling with debt and there appears to be no end in sight, you will probably wonder if debt can be written off. Although there are ways to write off debt, this is not as easy as it sounds and should only ever be used as a very last resort. For most debt, you are much more likely to be successful in challenging the debt itself or managing payments with a debt solution.

If you’re thinking about using any debt solution to write off or reduce debt, it is important to get professional and independent advice because many of these options will have hidden catches which could have a long lasting impact on your life.

Can debt be written off?

The decision to write off debt is made by a business and can only be taken by the company which claims you owe them money. There are complicated reasons why a company may not write debt off, even if you can prove that you do not owe them anything or if they know that the debt will not be paid back. Simply put, outstanding debt repayments make company accounts look better as money will be coming into the company in future.

For the individual, whether the debt has been written off will make little tangible difference, and if you do not need to pay this company then the result is the same. Most people looking for an option to write off debt are more likely to be able to reduce or challenge the debt. That said, debt can be written off, either because the company is forced to write off the debt through an insolvency solution or because you are able to convince them that they should write off the debt.

Common problems with repaying debt

If you are struggling with debt repayment, you will fall into one of the two categories. Either you will be:

Unable to make contractual payments towards the debt –

Potentially lasting for a short or long period of time, you will be able to repay the full debt, just over an extended period of time. In most cases, even when you have several creditors, it is possible to come to an arrangement which is feasible for you and acceptable for the creditor.

Or

Unable to repay the entirety of the debt –

With the exception of a lottery win or inheritance, the debt is far too large for you to feasibly pay it off.

The distinction between these two options is important when identifying if the debt is unmanageable as it could impact your options and determine whether it could be written off. 

If you fall into the second category above and have no prospect of paying off the debt you owe now or in the future, you are insolvent and will need to consider insolvency solutions, such as bankruptcy, an IVA or debt relief order, to force your creditors to write off the debt. However, insolvency solutions are a last resort and are unlikely to work if you can in fact make debt repayments.

How to get debt written off

Sometimes life events and changes of circumstances such as bereavement, illness or business failure mean that individuals are left with debt that they have no hope of repaying. If you find yourself in this situation, you should consider speaking to an insolvency practitioner about bankruptcy or another insolvency solution. These are legal options which will need to be approved by a court and will then allow you to make repayments, but only what you can afford. The remainder of the debt will be written off.

But be careful. These are extreme solutions that are designed for extreme circumstances. Any insolvency solution will have a massive impact on your life. Keep in mind that ‘what you can afford to pay’ will include any assets which you own; these will likely be taken and sold to pay your debts.

For most people in debt, insolvency will not be an option to write off debt. There are other debt solutions which manage monthly payments and reduce the balance in a way that is affordable to you, but using these will often take many years to clear your debt entirely.

Without using an insolvency solution, the best way to write off debt is to convince your lender that it is in their interest to do so. Your lender may agree to write off your debt for a number of reason, such as:

  • If it means getting more money through writing off the debt
  • If refusing to write off the debt would mean treating you unfairly
  • If pursuing the debt would cost them money
  • If the debt is unlikely to be recovered from you.

If you want to write off debt, you should take steps to convince lenders of one or more of those reasons. Some of the ways in which you could do that are set out below.

The first and most obvious way to write off some of your debt is to agree to a reduced settlement. If you can put together some money to make a settlement offer to your lender then they may agree to accept this in full as a final settlement. The remainder of your debt will be written off.

Remember that your offer is more likely to be accepted if the lender understands that it will take them a long time to recover the full debt if they do not accept your offer. The best way to do this is to also include a monthly budget and a monthly payment offer based on that statement. You can use this letter to make an offer to your lender.

The FCA, who regulates all banks and lenders in the UK, has very strict rules about what lenders must do to make sure that they are treating you fairly. If you show that the existence of the debt is making life impossible for you then you may also be able to prove that the lender will be breaking these rules if they do not write the debt off.

That may sound a bit cryptic, but what this really means is that if the debt is having a detrimental impact on your mental health or is putting you at risk, you should make sure that the lender understands this and then ask them to write the debt off.

Be aware that you will likely need proof of any health condition or risk that you tell them about – this will vary from lender to lender. Consider going to your GP for a diagnosis if debt is causing you mental health problems or if existing illness makes it impossible to deal with this debt. Your GP or social-care worker can fill out this form for you to share with your lender when you ask them to write off debt.

In very rare instances, the existence of the debt alone may put you at risk. For example, if you are a victim of physical or emotional abuse. If you have shared this with the police or a social worker, consider providing proof of these conversations to your lender.

However, in either of these circumstances, the lender does not have to write the debt off and may instead agree to put collection on hold for a period of time, but they have to consider your request. If they do not agree to write off your debt, they must tell you why. If you do not think this is fair, you can challenge the outcome. Many lenders are fair and will write your debt off.

Other ways to write debt off include making this debt statute barred or challenging the basis or legal enforceability of the debt. This might include making a mis-selling or affordability complaint about the way in which the debt was agreed to or asking for proof of what they say you owe.

If your lender is not able to establish what they claim you owe, they may decide to write the debt off, but this is not guaranteed. Don’t be put off though. If you can prove that you don’t owe anything then you do not need to pay, even if they refuse to write the debt off.

Galahad & Co. are experts at challenging debt. If you want to challenge your creditor or convince them to write off your debt, we’re happy to talk through your options. Get in touch with our friendly team today for a free, no obligation debt review.