Do Debts Go Away?Can Debts Be “Wiped Off The Books”?The answers are:YesYes and NoYes
Do Debts Go Away?
Can Debts Be “Wiped Off The Books”?
The answers are:
Yes and No
However, these answers are all contingent on a couple of factors, and one of those factors as we will see is, who you owe. Who is the creditor or creditors involved.
The fact that one day you can owe money to someone and be in debt and the next day you don’t, is quite strange when you think about it, and on the surface it is, but once you look deeper, it becomes clearer, but still can be a bit murky.
The Beginning and The End
Two of the most important parts of a story are the beginning and the end, and the same can be true of many things, and that includes being in debt, having bad credit, and/or struggling to get out of debt.
There are many ways one can find themselves over-extended financially and in debt.
Some may find themselves in debt due to circumstances beyond their control, such as being made redundant, health concerns and a loss of income.
Others may find themselves in debt due to over spending, not understanding the concept of credit and borrowing, or just poor financial planning.
However you get there, you are in debt and struggling.
How you get out of debt is just as important, and there are many ways to get out of debt. Some less pleasant than others, but the fact is you do not go to jail or prison, and you are allowed to keep your personal possessions, so in the end, how bad is it?
The options to get out of debt are many and range from making token payments to your creditors, to full-blown insolvency such as going bankrupt.
In the end you are out of debt, starting fresh, and relieved of all the stress and struggles.
Settling a Debt or Account
In some instances one way to get out of debt is to settle an account, meaning pay less then the full balance you owe, but the creditor accepts this and writes off or forgives the remaining balance.
An example might be you owe creditor ABC £5,000, and you have £2,500 in cash and offer it as a full and final settlement.
If creditor ABC accepts this, then you pay the £2,500, and your account is marked as paid, or paid, but for less than what was owed, and you no longer owe the balance.
Just as being in arrears with accounts affects your credit and credit score, settling an account can affect your credit score in a negative way as well.
But you are out of debt.
A few conditions must occur for a creditor to even entertain the idea of settling an account:
* The account must be in arrears.
* You need the cash to settle the account, or be able to make a couple of large payments to pay off the settlement offer.
You need to be in arrears as why would a creditor settle the account if you can afford to make the payments each month, and if they do accept a settlement, they are going to want their money quickly. So you need the money on hand.
If you owe many creditors, settling accounts can prove difficult, this is where a Full and Final IVA may be useful. This allows you to get all your creditors on one page, so to speak.
An account is said to be Statute Barred if the borrower has had no contact from the lender or creditor for a period of six (6) year or more.
Sounds simple, but it can be slightly more complicated than this.
How do you define contact???
If a bank or lender has been sending you notices, or trying to ring you and they don’t have your current details, is this not contact of some sorts.
In most instances a creditor is not going to spend 6 years trying to locate and contact you should you have moved away. So after a period of time, say 6 or more years, it may be easy to think you no longer owe the money, and you may not as the lender has written the account off, or sold it onto a collection agency. Who may pick up the collection baton and start the process all over again.
Writing Off Debts
It is possible for a creditor to forgive, or write off a debt at anytime, it is their choice to do so, although their hands may be bound by some legal issues and regulation procedures.
This is going to be rare, and there would need to be a very good reason for the lender to forgive the debt.
If there is no reasonable way for a lender to collect an account, such as the borrower has died, or become medically incapable of working and earning a wage, the lender can “write-off” or forgive the debt.
Writing the account off, means it is removed from the lender’s books, it is no longer a negative asset, which brings down the lender’s bottom line. So in essence by writing a debt off, it is a loss of money, but can make the lenders books look better.
This is what happens if a lender ceases collection efforts and a debt becomes statute barred, it gets written off.
Recently it was said that Chancellor Philip Hammond was going to “wipe £69 billion of debt off the government books”.
Who owes this £60bn in debt to the government, the housing associations.
It is hoped that by writing this debt off, the housing associations will be able to take more control over their finances and have more money available to buy and let houses out to those in need of housing.
I sense this is taking the debts off the government books, and giving it to the housing associations for them to pay as they can or will, allowing them to better balance their debt loads in a more affordable manner.
They are not locked into strict repayment schemes.
Mr. Hammond has stated, “There is no silver bullet, there isn’t a single thing that solves the challenge of affordability in the housing market – we are a crowded island and this is a very complex challenge.“
“But we have done a lot of work on this and next week we will start to set out our plan for addressing the housing challenges in this country, making sure that the next generation has the same opportunities as their parents did for home ownership and the accumulation of personal wealth through assets.”
As we can see, debts can be forgiven and written off, but as mentioned at the start of this, it is not as easy as just waiving a magic debt wand and the money owed disappearing.