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Which debt solutions allow you to write-off debts

Which Debt Solutions Allow You to write-off Debts

The economic impact of the Covid-19 pandemic and related lockdowns have been felt globally, and in the UK millions of people are still struggling to manage their finances over two years after the pandemic started. Fortunately, help is at hand and there are a number of debt solutions available that Debt Movement can guide you on.

Which Debt Solutions Allow You to Write-off Debts?

There are various debt solutions that have been formalised under UK law to protect and assist people who have found themselves in financial distress. Several of these could potentially allow you to write-off all or a portion of your debt. The three primary options are:

Below is a summary of these debt solutions, and the qualifying criteria.

What is a Debt Relief Order (DRO)?

A Debt Relief Order (DRO) is a formal insolvency solution which could enable you to have a debt written off , provided that you have a low disposable income, assets worth less than £2,000 in England or Wales or £1,000 in Northern Ireland and meet the other qualifying criteria.

A DRO essentially freezes your debt repayments for a period of 12 months, and if your financial situation hasn’t changed at the end of the 12 month period, the debts included will be written off. If, however, your circumstances improve within the 12 month period, and you are able to pay some or all of your debts, the DRO may be revoked so that you can pay your creditors. If your DRO is revoked, you cannot apply for another one for a period of 6 years. There is also a fee attached to a DRO which is £90.

In order to qualify for a DRO, you must have:

For a resident of England and Wales:

  • Your total debt level is less than £30,000.
  • Your monthly surplus after covering the household bills and living costs of £75 or less.
  • You do not own a property.
  • The total value of assets you have are not worth more than £2,000.
  • If you have a car its value is not more than £2,000
  • You have not had a DRO in the last 6 years.

For a resident of Northern Ireland:

  • Your total debt level is less than £20,000.
  • Your monthly surplus after covering the household bills and living costs is £50 or less.
  • You do not own a property.
  • The total value of assets you have are not worth more than £1,000.
  • If you have a car its value is not more than £1,000
  • You have not had a DRO in the last 6 years.

What is Bankruptcy?

Bankruptcy is a formal and legally binding insolvency solution that enables you to have your debts written off if you cannot afford to repay them. Bankruptcy usually lasts for 12 months, after which, most of your remaining debts will be written off. If you have any disposable income, you may be subject to an Income Payment Agreement (IPA), where you would be required to pay an affordable monthly contribution for 3 years into your bankruptcy estate.

Whilst there is no specific criteria in terms of debt level, income or number or creditors, bankruptcy is usually regarded as a last resort. Any assets that you own, including your house and car may be sold off to settle your debts, if they are deemed to be of excessive value. Bankruptcy is often considered to be an expensive debt solution, as it requires upfront fees which range from £680 in England and Wales, £647 in Northern Ireland and £200 in Scotland. These fees can however be paid in instalments.

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement between an individual and their creditors. It is a solution that allows a person to only repay a percentage of their unsecured debt to their creditors in affordable monthly payments, usually over a fixed term of five or six years. ​​An IVA may also be completed sooner if a lump sum settlement is made due to a windfall or change in circumstance. Once your IVA is approved by your creditors, interest and charges will be frozen and no further action can be taken by the creditors in relation to your unsecured debt. When the IVA is completed, you will receive a certificate of completion, and the remaining unsecured debt is written off.

In order to qualify for an IVA, a debtor must have:

  • A debt level of at least £5,000
  • At least two lines of credit
  • Disposable income of £85 per calendar month
  • Be over 18 years of age

How can Debt Movement help?

When deciding which debt solution to choose, you should always seek expert guidance before making any decisions. Understanding the benefits and shortfalls of each solution, whether a DRO, Bankruptcy, or an IVA, is very important. If you would like some expert guidance regarding which debt solution is right for you, contact us today and speak with one of our non-judgemental guides.

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