Do credit card debts get written off?
Credit cards offer convenient access to revolving funds that can be paid back over time. But when debt begins accumulating faster than you can repay it, credit cards can quickly become a burden. If you find yourself barely keeping up with minimum payments or unable to pay at all, you may be wondering – can credit card debt get written off?
In this guide, we’ll explain how credit card write-offs work in the UK and outline the main debt solutions that could help you write off credit card balances. We’ll also suggest some alternatives if formal debt relief isn’t the right option for you, such as Debt Management Plans.
What does it mean to 'write off' credit card debt?
When credit card debts are ‘written off’, it essentially means they have been cancelled. The debt is removed from your account and you are no longer liable for any remaining balance. This usually takes place because you are insolvent (i.e. unable to repay your debts).
This doesn’t happen automatically, however. For unsecured debts like credit cards, write-offs typically require an application through a formal debt solution, such as bankruptcy.
Going through an insolvency process to write off your credit card debt can provide you with a fresh financial start. As these solutions are legally binding, your creditors are required to abide by the outcome, and can no longer pursue you for the debt.
How can you write off credit card debt?
If you cannot repay your credit card debt, some common debt solutions that can lead to credit card write-offs include Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs), and bankruptcy. These are available in England, Wales, and Northern Ireland – there are different processes for Scotland residents.
01. Individual Voluntary Arrangements (IVAs)
An IVA is a legally binding agreement between you and your creditors, overseen by a licensed Insolvency Practitioner. It allows you to settle your debts by making reduced monthly payments, based on what you can afford, over a set period- typically 5-6 years.
At the end of the IVA, any outstanding debts are written off. This may include credit cards and other unsecured borrowing like payday loans or overdrafts.
To be eligible for an IVA you must generally:
- Owe at least £6,000 in total unsecured debt (a lower amount may be considered)
- Have a regular income allowing you to make the monthly payments
- Owe money to more than one creditor
IVAs have the advantage of allowing you to avoid bankruptcy while writing off credit card debts you can’t fully repay. However, they do impact your credit file for the 6 years from when it is approved, in addition to any separate entries made by your creditors.
02. Debt Relief Orders (DROs)
DROs provide a way to write off credit card arrears if you have a low income, few assets, and relatively little debt. You may be eligible for a DRO if you:
- Have a maximum of £30,000 total qualifying debt
- Have no more than £75 left over each month after living expenses
- Have less than £2000 in savings and assets
- Do not own your own home
When you’re on a DRO, you won’t have to make payments towards most of your debts, and none of your creditors can pursue you. After 12 months, all included debts are legally written off. DROs will remain searchable on credit files for 6 years, so future lending may be restricted.
Declaring bankruptcy through a court order releases you from repaying unsecured debts like credit cards, providing an opportunity for a fresh financial start. You may be eligible for bankruptcy if:
- You are unable to repay debts as they fall due
- The amount you owe is more than the value of your belongings
While bankruptcy wipes the slate clean in most cases, it is a significant step with long-term impacts to your credit record, and your bankruptcy will be published publicly.
Additionally, any assets you own may be sold to repay your creditors, including your home. However, you can keep the essentials (such as clothing and furniture).
Alternatives to formal debt solutions for writing off credit card debt
While IVAs, DROs and bankruptcy all allow for credit card debt to be legally written off, they aren’t the only solutions. Depending on your circumstances, there may be other options available that could help you deal with your debt.
01. Talk to your creditors
If you’re facing financial difficulties, inform your creditors. They may agree to reduced or frozen repayments for a period to help you get back on track.
While not writing off your debts, this can provide temporary relief and help you avoid credit damage. Once your situation improves, you can resume normal payments.
In some cases, creditors may accept a ‘full and final settlement’ offer: a lump sum payment that’s less than the amount owed. This can write off a portion of the balance.
It’s unlikely that your creditors will agree to writing off all of your debt without a formal insolvency solution in place. However, it may be worth asking, especially if you can prove that you cannot afford repayments and you have no valuable assets.
02. Debt management plans (DMPs)
With a DMP, a third party consolidates your unsecured debts, including credit cards, and attempts to negotiate reduced interest rates and repayments with your creditors. This can help make repayment more affordable, though it may take longer to become debt-free (and you may pay more in total over time depending on fees and any interest charged).
The debt management provider will work with you to create a tailored monthly budget, considering your income, outgoings, and financial commitments. You pay a single monthly amount to the company, who distributes the funds between your creditors.
DMPs typically work best for individuals with regular incomes who can make monthly contributions. However, they are not suitable for everyone facing debt troubles. Seeking professional advice is essential to determine if a DMP is right for you.
Get debt help from the experts at DFH Financial Solutions
Dealing with unmanageable credit card debt can feel overwhelming. But you have options, whether it’s pursuing formal debt solutions or alternative repayment plans.
At DFH Financial Solutions, our advisors have supported thousands of clients in assessing their debt relief options and regaining control of their finances. If you owe multiple creditors, we may be able to match you with a personalised debt management plan tailored to your unique situation.
For professional, personalised advice and recommendations, contact DFH today. Our experienced team will be happy to help you work towards a better financial future.Get Debt Help