How to write off unsecured debt

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If you’re looking for ways to write of unsecured debt, then you will be pleased to know that there are several options available to you. You are certainly not alone in seeking a solution to the worries caused by debt: the average household in the UK now has debt worth £62,965. Often, things happen beyond people’s control. This can make repaying debt difficult or impossible.

The impact of debt and money worries on mental health is well documented. This means that there is a greater need than ever to deal with unsecured debts. We’re going to explore three ways where you can see this written off so that you have the information to decide which is best for you. 

IVAs (individual voluntary arrangement)

An IVA allows you to write off up to 85% of your debt. It is a formal agreement that sees you paying an affordable amount towards your debts over a 5-6 year period. At the end of this time, any unsecured debts remaining are then written off (assuming that they were included in your IVA in the first place). An IVA is overseen by a qualified insolvency practitioner, and any fees are included in your monthly payment amount.

There are IVA pros and cons to consider. These include:

Pros

  • The monthly payments are affordable and vastly reduced from what was being paid
  • Your home isn’t usually at risk
  • No setup fees to pay
  • After your final payment, your unsecured debts are cleared

Cons

  • You may be required to remortgage your home to release any equity
  • If your IVA fails, there is a chance that you could be made bankrupt
  • Your credit rating will be effected 
  • Your IVA appears on a public register 

Bankruptcy

Bankruptcy is a way to write off almost all debts, secured and unsecured. This is a legal process that can give people a fresh start when there is little prospect of being able to repay what is owed. You can declare yourself bankrupt or you may be made bankrupt by one, or more, of your creditors. Generally, you are bankrupt for 12 months and subject to restrictions, however, in some cases, restrictions can last as long as 15 years if you are subjected to a Bankruptcy Restriction Order.

The pros and cons of bankruptcy include:

Pros

  • You can write off all debts, giving you a new start
  • You will have no further contact from creditors 
  • In simple cases, you will be free of restrictions within 12 months

Cons

  • This is an extreme solution and severely impacts your credit rating
  • There is a chance that you could lose your home
  • Your car could be taken towards repaying debts
  • Bankruptcy affects certain jobs
  • You will appear on a public register showing that you are bankrupt 
  • If you make yourself bankrupt, you will need to pay a fee of £680

DRO (debt relief order)

A DRO is suitable for people with lower levels of debt. It sees payments and interest charges being frozen for 12 months. If there has been no change to your financial situation at the end of 12 months then your debt is written off.

The pros and cons of a DRO include:

Pros

  • You have no payments to make for 12 months
  • After this time, you could be debt-free
  • There is no need to appear in court to set this up

Cons

  • Only available to people owing less than £30,000
  • There is a one-off set up fee to pay
  • Homeowners can’t use this option
  • Your credit report will be affected and you will appear on a public register

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