How to write off debt legally


How to write off debt legallyDebt has become something of a fact of modern life, with a large proportion of us in debt from student loans, mortgages, credit cards, bank loans and other forms of debt. While debt is not in itself a bad thing and borrowing money can be an excellent way to achieve business and personal goals, unmanageable debts can be a huge burden.

With professional advice it is often possible to set up schemes to pay back your creditors over time. Consolidation of loans, where you take out one single loan to pay off several smaller debts, can be one such way to help you on your way to resolving your problems, as can careful financial planning and prioritising debts by level of urgency. Working out which debts are priorities and working out a plan with the loan provider to pay them back over time can be an effective option without needing to resort to more formal solutions. However in more extreme cases those in debt may need to make use of one of the legal options for writing off debt.

IVAs in England and Wales

Individual Voluntary Agreements are one such legal option for managing debt. This is an agreement you make with your creditors to pay back a set amount each month using any spare income you may have. This agreement is then approved by the courts and both you and your creditors are legally obliged to abide by the repayment plan. Once an IVA is agreed creditors cannot demand repayments higher than you can afford.

IVAs can however do also have their downsides and the penalties for missing payments or breaking the agreement can be severe and may include bankruptcy.

Trust Deeds

A trust deed is a legal arrangement available for Scottish residents to help manage their debts. It is a formal agreement between you and your creditors acknowledging that you do not have enough money to meet your repayments and setting up a schedule in which some of the debt can be paid off and the rest is written off. Creditors are effectively agreeing to receive less back, but to have their monthly payments guaranteed by a court order.

Unlike with an IVA, a statement of affairs must be completed which is a verified statement of your financial situation. The repayment schedule will be agreed based on this statement. Once the deed of trust is in place you will be bound by it for a period of four years, and during that time any additional money earned may mean an increase in your monthly payment. An experienced debt advisor can help you to plan if a trust deed is right for you.


Bankruptcy is a court order which declares that you are unable to pay your debts. Creditors must therefore write off your unaffordable debts and accept payments only if you can afford to make them. Once the bankruptcy order has expired you can make a fresh start. However bankruptcy imposes serious restrictions. You will have to sell possessions of higher value which may include your home and cars over a certain value to pay off as much of your debt as is possible. During the length of the bankruptcy order you will not be able to apply for more credit. A declaration of bankruptcy is a public document so your details will be published on the insolvency register which could affect future job or business prospects. Your credit rating is also adversely affected.

Bankruptcy is very much a last resort, and should not be undertaken without professional debt advice.

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