If you are struggling with your debt and can’t see a way out of it then this guide will take you through the steps that will show you how to write off the debt you can’t afford. The government has provided formal and legal debt solutions to help people who find themselves in the position where they cannot pay their debts as they fall due and are unlikely to be able to pay them off in a reasonable timescale.
Step one: take action now
It is important to take action as soon as possible on your debt problems so you remain in control of what is happening and you don’t allow your creditors to take formal legal action against you. If your creditors have already taken action then there are options to stop this temporarily so you have the time to put the procedures in place to solve your problem. The important rule is to take action immediately to determine your options and remain in control.
Step two: assess the extent of your problem
This is a simple process and although it is one that many people shy away from it can be done quickly and easily and is a crucial part of the procedure. You need to make a list of everybody you owe money to with the amount you owe and the amount of each payment that should be made to them. This does not have to be accurate to the penny at this stage and most of the information can be found in the monthly statements you receive or the demands for payments your creditors have been sending.
If you can, you should take a separate note of any borrowings you have that are secured such as a mortgage that will be secured against your house or an HP agreement that may be secured against your car. Secured and unsecured debt is treated differently in the debt solutions where you can write off your debt.
Work out a basic income and expenditure statement that shows your total income which includes salary, wages, benefits and any other income you have and then estimate what your normal living expenses are. The final thing to do here is to make a list of your main assets such as your home, if you are a home owner, or for example a car if you own one.
Step three: seek professional debt advice
Although it is possible to assess, choose and register for the formal debt solutions on your own it is always advisable to seek professional debt advice. The knowledge and experience of an expert debt advisor is invaluable. There are many organisations that provide free debt advice and they will assess the extent of your problem, determine what debt solutions you qualify for and advise on the best solution for you and your financial circumstances.
Step four: the debt solutions that allow you to write off your debt
There are many debt solutions available for people who have financial difficulties and are struggling to repay their debt. Many of them consist of arrangements whereby you agree with your creditors to repay a smaller amount each month but you have to repay it over a longer period of time and no debt is written off in the process. Others are for the more serious debt problems and provide a straight forward route to writing off your unaffordable debt.
The debt solutions where you do not write off debt:
- Debt management plans
- Debt consolidation loans
- Debt arrangement scheme
The debt solutions where you can write off debt:
- Trust deed
- Individual voluntary arrangement (IVA)
- Debt relief order
Debt solutions where you can write off debt are classed as insolvency procedures and are legally binding on both the debtor and the creditor
Going bankrupt is seen as a last resort solution and is generally used for the more serious debt problems, but it is important to realise that it is all relative to your financial circumstances and is not necessarily about the size of the debt.
Ensuring you receive effective bankruptcy advice is an important part of the process before you decide to proceed.
Step five: start the legal procedure
The recommend approach is to seek advice first of all and then decide on the best option for you. Insolvency solutions require a licensed insolvency practitioner or the publicly appointed administrator such as the Accountant in Bankruptcy or the Official Receiver to administer and oversee the legal process.
Once the legal procedure is in process the administrator will deal with your creditors on your behalf and your creditors will no longer be able to contact you or take legal action against you.
When an agreement is reached with your creditors on how much of your debt you will pay and how much will be written off, the agreement is then ratified and officially registered. As long as you abide by the agreement it will run its course and you will be debt free at the end of it.