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Debt Calculator - How Much Can You Write-Off?

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Debt Calculator

Debt Write Off and Management calculator explained

The first step to managing your debt is to realise precisely what you owe to different creditors. This debt calculator is very simple; we look at the overall debt and then break this down into different creditors and their individual debts.

This allows those who have built up significant debt to identify the creditors who make up at least 75% of their debt in value. This is a critical figure when looking at one debt management option, in particular, an Individual Voluntary Arrangement (IVA).

Unless at least 75% of your creditors by the value of overall debt agree to an IVA, then it simply won’t happen. 

First, the Reality Check

While there are numerous different debt solutions available, which we will come to in a moment, the first stage for anybody struggling to repay their debts is a reality check. In your mind, you may focus on the larger creditors when behind-the-scenes there may be a number of smaller creditors which are also owed significant amounts of money.

This debt calculator allows you to see, probably for the first time for many people, their creditors and the level of debt that has been built up in front of you. If you see the cumulative figure, it can be frightening, but if you see each individual creditor, it will give you a reality check!

Looking to the Future

Those who have been through financial problems will be well aware of the mental pressures which can build-up, as well as the physical effect this can have on your well-being. Waking up each day wondering which creditor will be chasing you today, what you’ll get through the post or whether you will get a knock on the door is not enjoyable.

Basically, your life is being put on hold as you firefight a financial situation which for many people is impossible to win – without help. There are occasions where you simply need to put your hands up, ask for help and start the recovery process. There is no shame in asking for assistance, and there are numerous different ways in which you can manage your debt and come out of the other side with a future in front of you.

Credit Referencing

If you apply for any type of finance, the potential lender will carry out a credit check to see how you have fared with your finances over the last six years. It is worth noting, any reference on your credit file will remain “live” for six years. So any major debt issues could impact your ability to lend money for some time.

The key to managing your debt is to address the issues before one-off missed payments become more regular, and your creditors start chasing you. If you can regain an element of control during the debt reorganisation/management process, this will help you mentally, allowing you to take on board what is happening and make changes.

We have seen many individuals who have “buried their head in the sand” as their finances take a downturn, and they know in their heart of hearts, they will struggle to make repayments. The problem is once the issue gets beyond a certain point, it can be difficult to rescue, things could get much worse before they get better.

So, if you are struggling with your repayments or you foresee problems in the short-term, it is imperative that you act now.

Taking Debt Management Advice

Personal debt in the UK has been growing for many years. As we approach an expected deep recession, those who expect difficulties making payments in the short term may need to act sooner rather than later. These are the conditions where those already struggling with debt problems will see them worsen, and those with borderline issues are often tipped over the edge.

While it may be tempting to “bury your head in the sand” the fact is that the sooner you face your debt issues, the more chance you will have of rectifying them.

Ideally, the goal would be to go down a route which would see your debt payments reorganised while at least partially retaining a semblance of positive credit history. Unfortunately, for many people, this is just not possible as their debts get out of control, their income is under pressure, and the cost of living continues to rise. Something needs to be done!

We will now take a look at the various debt management options available, some of which will see all/part of your debts written off while others will reorganise your payments to more affordable levels.

What Is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) as the name suggests, is a voluntary arrangement between an individual and their creditors.

Before we look at an IVA in detail, it is worth reviewing the criteria for eligibility:-

  • Individual must be insolvent
  • Minimum cumulative debts of around £5000
  • At least two creditors
  • Regular income
  • Greater return for creditors than bankruptcy
  • Available for England, Wales and Northern Ireland residents
  • Able to pay a minimum of circa £80 a month into an IVA

You will not necessarily need to meet all of the above criteria but the more that you do meet, the more chance of putting in place an IVA.

How Do I Apply for an IVA?

In order to apply for an IVA, you will need to put together a list of your creditors, monthly expenses, income, and calculate your surplus capital. You then need to approach an insolvency practitioner who will review your situation and then decide whether the IVA route is the best option or whether there are other alternatives. Assuming they decided that an IVA was the best route for your situation, the proposal will be put to all of your creditors for a vote.

You will need the support of creditors representing at least 75% of your overall debts to put an IVA into place. If you receive the relevant support from your creditors, then an IVA will be put into place, and you will begin your monthly repayments.

Those repayments would be based upon estimated surplus income after taking into account all of your expenses and income.

How Does an IVA Work?

There are a number of factors to take into consideration when looking at IVAs such as:-

Type of Debts Allowed in an IVA

It is only unsecured debts which are covered by IVAs simply because any secured debts will be covered by collateral.

Term of an IVA

There is no hard and fast rule regarding the term of an IVA, but they tend to be five years in duration, although this could be extended under extenuating circumstances. This allows those struggling with debts to have a degree of visibility going forward and something to aim for.

Failure to Make All Monthly Repayments

Each monthly payment will be split between your creditors and the insolvency practitioner. Failure to make all monthly payments would likely lead to the IVA being cancelled and alternative measures considered.

Contact From Creditors

During the term of your IVA, creditors are not allowed to contact you directly, and any communication should be passed to your insolvency practitioner. An IVA will also stop bailiffs and other debt recovery services from demanding payments from you.

Change in Circumstances

If for example, your financial position was to improve during the course of your IVA it is very important that you contact your insolvency practitioner as soon as possible. Depending on the level of improvement, they may increase your monthly payments or in certain circumstances bring the IVA to a close and refer back to the original repayment terms with each creditor.

Failure to advise your insolvency practitioner of any changes in your circumstances could have serious consequences.

Receipt of Windfall Payments

Any receipt of one-off payments or assets would also need to be reported to your insolvency practitioner. One example over the last few years is PPI compensation which would be deemed part of your IVA and likely used to increase your payments to creditors.

An IVA is one of the more formal types of debt management options available and would have a significant impact on your credit rating. It is also worth remembering that all references in your credit file remain to live for six years.

If we assume that as soon as you realise you are in financial difficulty that you successfully apply for an IVA, then there could still be a period of 12 months after the IVA has ended that your credit history is still impacted.

Debt Management Plan (DMP)

A DMP is best described as a way of rescheduling your repayment over a prolonged period of time. This type of arrangement is fairly common where an individual has, for example, been made redundant and/or their regular income has been disrupted. As this is a type of informal arrangement between a debtor and creditors, it can be brought to a close at any time if, for example, there was an improvement in the individual’s financial status.

Impact on Your Credit Rating

Even though a DMP is an informal arrangement between a debtor and creditors, it will still likely have an impact on your credit rating. For example, before a DMP becomes a real option, you would probably have seen a significant deterioration in your finances and probably have started to miss repayments.

As these will be noted on your credit file, the inclusion of a DMP is to all intents and purposes the first step on the road to recovery. As with all credit reference notes, they will remain live on your credit file for six years during which time they will impact your ability to raise finance.

Working Out a Repayment Plan

As we touched on above, this is an informal arrangement between a debtor and their creditors which will consider income, expenses and any surplus capital on a monthly basis. It is in the best interests of all parties that a reasonable and affordable repayment plan, with interest and charges frozen, is put into place.

There is no point trying to repay debts too quickly when it is obvious this could lead to even greater financial distress going forward.

Putting a DMP in Place

While in theory, it is possible for an individual to approach their creditors and attempt to agree to a DMP; in reality, this is not as straightforward as it looks. Therefore, many people will use the services of a debt management company who will have experience, contacts and the ability to advise you about the most appropriate action for your situation and when to take it.

Reviewing Your Finances

It is also worth noting that under the terms of a DMP, any one of your creditors can at any stage request a review of your finances which would include assets and income.

Obviously, payments may be increased in the event of positive developments on your finances, but consequently, a further deterioration could see payments reduced.

No Debt Write-Offs

Unlike other debt management alternatives such as bankruptcy, IVA, etc. there is no provision for remaining debts to be written off after a DMP expires. You would simply revert back to the original repayment terms, or there may be the possibility to refinance debts with a consolidation loan. Either way, this is not a means of writing off your outstanding debts.

While any debt repayment issues will have an impact on your credit history, as a DMP is an informal arrangement and involves the freezing of interest and charges, it can be less damaging than the likes of an IVA. There are no specific eligibility criteria for a DMP aside from the fact there has been a deterioration in finances which has made it impossible to cover financial liabilities in the short-term.

Looking at a DMP from the point of your creditors, they would much rather accept reduced payments in the short-term with the idea of reverting back to the original repayment terms in the future.

Debt Relief Order (DRO)

Over the years, we have seen significant developments in the debt management industry, and one such statutory addition is that of a DRO. This is a debt management tool, administered by the courts, which is wholly focused on those who have relatively low levels of debt, few assets and minimal income.

In this scenario, it is fairly obvious that the individual is unlikely to be in a position to repay their debts for the foreseeable future. We have listed some of the bullet points regarding DROs below:-

Short-Term Suspension of Debt Repayments and Interest

Initially, there would be a 12 month period during which debt repayments and interest charges would be frozen. The idea is simple; this 12 month period will give the debtor the opportunity to reorganise their finances and make positive adjustments where possible.

Creditors Barred From Contacting Debtors

For the full duration of a DRO, all creditors are barred from contacting debtors directly to request repayments. They may be able to contact debtors for purely administrative purposes, but they cannot discuss outstanding debts or the DRO.

Debts Written Off

Upon the expiry of a DRO, the courts will assess an individual’s financial status at that time with two options available. If their financial well-being has not improved, then their debts will be written off. If there has been an improvement, then they may be asked to repay all or part of their outstanding debts.

As with any debt management tool, there will be a significant impact on the debtor’s credit history and credit rating. In reality, for an individual to even consider a DRO, they would already need to have experienced financial distress.

As a consequence, there is likely to have been a significant impact on their credit rating already, and the addition of a DRO is actually a positive step in the right direction.


Even the term bankruptcy can send a shiver down your spine as many people see this as the end of their financial well-being. The reality is that bankruptcy for many people is the first step on the road to recovery. A means by which to draw to a close what can be an extremely difficult and challenging time of their life, physically, financially and mentally.

There are numerous factors to take into consideration with regards to bankruptcy:-

Applying for Bankruptcy

If an individual is unable to repay outstanding debts and they are effectively insolvent, then they can apply for bankruptcy themselves. An individual can also be made bankrupt by a creditor in the event that repayments have been missed and they believe the debtor to be insolvent.

Term of Bankruptcy

A traditional bankruptcy will last 12 months after which, normally, all of the individual’s unsecured debts will be written off. There will be occasions where the bankruptcy term can be extended in the event that funds may be forthcoming in the future or there have been difficulties obtaining accurate information.

Repayments Within Bankruptcy

As bankruptcy tends to revolve around those who are insolvent, it is unlikely that the individual would choose this route if they had any significant surplus capital each month. However, in the event that they did have an element of capital available, they may be asked to make payments towards outstanding debts.

Transfer of Assets

Upon approval of a bankruptcy order, all of a debtor’s assets will effectively be transferred to an insolvency practitioner who will act as a trustee and in effect manage the bankruptcy proceedings. Those assets with any meaningful value could be liquidated with funds used to repay part/all outstanding debts.

Outstanding legal actions and potential compensation payments would also form part of the assets under the control of the trustee.

Eligible Bankruptcy Debts

As with the majority of debt management tools, in general, only unsecured debts can be included in a bankruptcy. This is simply because any secured debts would have collateral or a guarantor which could be “called-in” in the event of financial difficulties.

There are some exceptions to the rule such as court fines and student loans, but in general, bankruptcy tends to be focused on unsecured debts.

Clarifying Your Financial Situation

We have seen instances in the past where individuals have been less than forthcoming with regards to details of their finances and assets. It is illegal to misrepresent your financial affairs when seeking bankruptcy. In the event that a debtor was proven to be dishonest in their bankruptcy application, there could be legal and financial repercussions.

As we touched on above, while many see bankruptcy as the end of their life as they know it, in many ways, it is the exact opposite. For many, it can allow them to draw a line under the financial difficulties of the past, write off their debts and move on.

From a creditor’s point of view, there is no financial sense in pursuing an individual who quite clearly has no means of repaying their outstanding debt. While obviously not an ideal situation to be in for either party this is often a sensible approach were the debtor is insolvent and this is unlikely to change.

Offer in Full/Final Settlement

While not one of the more common debt tools used today, often involving delicate negotiations, it may be possible to negotiate an offer in full/final settlement of outstanding debts. This type of arrangement is only applicable where an individual has limited regular income but may have come into an inheritance or another form of one-off financial payment.

Advantages of an Offer in Full/Final Settlement

The benefits are simple; this arrangement would allow an individual to pay off what they could afford at the time in exchange for the balance being written off. While obviously any missed payments would already have been noted on the individual’s credit file, this could well avoid a number of future missed payment markers.

However, the opportunity to draw a line under past financial difficulties and move on is very important.

Disadvantages of an Offer in Full/Final Settlement

It is likely that approval of an offer in full/final settlement would be added to your credit file and have an impact on your credit score for the next six years. However, for a creditor to even consider such an arrangement it would likely mean that repayments have already been missed and your credit history has already been damaged.

On occasion, you may see creditors refuse this type of offer and move in favour of monthly payments, funded by the one-off cash injection. This leaves open an opportunity for the debtor’s finances to improve in the future and maybe even revert back to the original debt repayment schedule.

As negotiations with this type of arrangement can sometimes be fairly complex, many people in this situation will employ the services of a debt management company to represent them. While many might think otherwise, it is by no means beyond the realms of possibilities that where an individual is struggling their creditors would accept such an offer.

Administration Order

In theory, an Administration Order as a means of managing outstanding debts is relatively simple, but in theory, there are some issues to consider. The first act involves approaching a County Court to request that a regular monthly payment plan is put in place to cover outstanding debts.

At this point, the courts will consider the individual’s financial circumstances; debts owed as well as their ability to cover the proposed repayments. If accepted, the monthly repayments will go through the courts and be distributed to creditors on a pro-rata basis.

Advantages of an Administration Order

As a condition of an Administration Order, those creditors involved in the action will not be able to contact the debtor directly. While there is no set term for Administration Orders, they are unlikely to last for any longer than three years. As the Administration Order approaches expiry, the courts will review the individual’s financial situation and will often rule that outstanding debts are written off.

However, if there has been an improvement in the individual’s financial circumstances, they may simply revert back to the original repayment timetable.

Disadvantages of an Administration Order

In order to apply for an Administration Order, an individual must have debts of less than £5000 which are owed to at least two separate parties. They must be able to prove a degree of income to fund repayments during the Administration Order, and at least one debt must relate to a County Court/High Court judgement.

All assets held by the debtor would be taken into account, and if the court deems, there are sufficient assets to repay debts, then the application would be refused.

An Administration Order is a debt management alternative for relatively low-level debts which effectively circumnavigates the approval of creditors. If the courts deem it sensible to apply for an Administration Order, then they will do so based upon the financial status of the individual.

Negotiated Write-Offs

There may be situations where a debtor’s financial status has deteriorated as a consequence of illness, or a permanent disability, to the point they cannot afford their repayment obligations. While creditors would require evidence to consider a negotiated write-off, it is very often in the interests of both parties.

From a debtor’s point of view, it would allow them to write off outstanding debts and start again, albeit under a weakened financial status. Creditors would likely be able to use write-offs against their taxable income, and it would also remove the future cost of chasing debts which are in effect non-recoverable.


In recent years we have seen the introduction of new debt management options for those in varying levels of financial distress. We started this article with a look at IVAs, which require the approval of creditors representing at least 75% of outstanding debts, and concluded with compassionate debt write-offs.

There are a whole range of different options in between, and it is sensible to seek debt management advice if you have seen or expect your financial status to deteriorate. The quicker you act, the more options available and the sooner you can get your financial life back on track.

How Can Love Debt Free Help?

Here at Love Debt Free, we have partnered with some of the UK’s leading Debt help companies.

They have already helped thousands of people reduce and manage their debts, and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these debt help companies, click on the below and answer the questions.