Does debt forgiveness exist in the UK? Is it really possible to write off my debt? In this article we examine how and when it is possible to have your debt written off or forgiven.

If you are struggling to repay debt perhaps you will be surprised to hear that every day UK banks and other creditors write off debts for their personal clients. According to Credit Action, between April and June 2012 UK Banks and Building Societies wrote-off £1.15 billion to individuals (of which £567 million was credit card debt) amounting to a daily write-off of £12.52m.

However despite this huge amount of debt forgiveness banks will not simply agree to write off debt if you just ask them. Your circumstances must first fit some specific criteria.

Debt forgiveness using a Debt Management Plan

Before any bank or other lender will agree to write off debt for you they must first be convinced that you are not able to repay what you owe them. The most common way of doing this is to start a Debt Management Plan (DMP).

This debt solution allows you to reduce the payments that you make towards your debts each month so that they fit into an affordable budget. Your creditors will agree to these reduced payments if you present your income and living expenditure information to them and they can see that it is impossible for you to pay more.

BMD Tip: This debt solution does not automatically involve debt forgiveness. In fact when you start your Plan you are still responsible for repaying 100% of your outstanding debts.

However if you have been in your plan for 6 months or more very often the banks you owe money to will accept lump sum settlement offers meaning that you might be able to write off between 50% and 70% of your outstanding debts.

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Debt forgiveness using an Individual Voluntary Arrangement

Another common debt solution used by individuals in England & Wales is the Individual Voluntary Arrangement (IVA). This is a formal insolvency procedure.

The solution allows you to pay as much as you can towards your debt for a fixed period of time (normally 5 years). At the end of the this your creditors formally agree to write off any unsecured debt which is still outstanding.

Sometimes the solution is referred to as a Government backed scheme to write off debt. This is however misleading. The scheme is supported by the government in so much as it is part of the Insolvency law of England and Wales. However the Government and all good insolvency professionals take care to stress that the solution has potential downsides as well as advantages.

It is not right for everyone and must be considered in the context of the individual’s personal circumstances.

Debt forgiveness using Bankruptcy

Another option for achieving debt forgiveness is by going Bankrupt. For most people the idea of bankruptcy sounds like something to be avoided at all costs. However for many people in the UK it can be a very sensible option.

Once bankrupt you may be asked to make a contribution towards your debts from your income each month if you can afford to. However this will last for just three years. After this (or after just 12 months you are unable to pay anything) your debts will be written off entirely.

Of course bankruptcy is not for everyone. If you are a home owner or you own a car worth more than £1000 you have to think very carefully before taking this route as these items could be at risk.

However if you are not a home owner or your home is in negative equity and do not own an expensive car then it is likely that you will not lose any of your personal belongings if you declare yourself bankrupt and your unsecured debts will be totally written off.

Is debt forgiveness easily achieved?

Because of the options available for debt forgiveness, the UKs insolvency rules are sometimes considered to be some of the most lenient in Europe and perhaps the world.

However the reality is that the ease at which you will be able to achieve debt forgiveness really depends on the nature of your circumstances and what you are prepared to give up in return.

Clearly to have any chance of your debts being forgiven you must be insolvent and unable to repay them normally. In addition only unsecured debts will be forgiven. It is very unlikely for a secured debt such as a mortgage to be written off.

If you have no assets and you are facing unsecured debts that it is impossible to pay, then arguably it is not difficult to use any of the debt forgiveness options described above, particularly declaring yourself bankrupt, with the result that all your unsecured debt will be written off.

However if you do have assets that you want to try to save, writing off debt becomes more difficult and often requires expert advice.