I spent my afternoon yesterday in an hour long debate which felt a little like question time. The topic of conversation was “should debt be written off?” One of the reasons I started the Debt Advice Resource blog was to have discussions about social topics, such as debt and money. So, it won’t come as a surprise that I thoroughly enjoyed the debate on whether debt should or shouldn’t be written off.
In many UK based debt solutions there is an element of debt write off. This means that the consumer repays a percentage of their debt (sometimes it’s 0%, but in rare occasions) and the remaining outstanding debt will be cleared at the end of the solution. Interest and charges which is owed on the debt is also written off.
Examples of these solutions include a Trust Deed in Scotland, IVA in England, Wales and Northern Ireland and Bankruptcy across the UK. Within a Trust Deed or IVA a percentage (usually about 20%) will be repaid towards the debts. At the end of the debt solution the rest of the debt is legally written off and isn’t due to be repaid in the future. Within Bankruptcy, if somebody can afford to repay something towards their debt then they have to for 3 years. If they can’t then all the debt is written off for free.
For Debt Being Written Off
I argued that debt write off is positive and should be offered, where appropriate. I believe this because:
1. Health reasons: Being in debt is an emotional and draining existence. It’s not surprising that 80% of people who have debt problems also experience mental health issues. We can’t have a society which encourages unhealthy behaviour, which is what being in debt can do.
2. Learn from mistakes: Everybody makes mistakes in life and for most people they don’t wish to be in debt in the first place. A circumstantial situation means debt occurs, for example, divorce, loss of employment or bereavement. Given statistics from debt charities, it’s not regularly because people just go crazy on their credit cards!
3. Creditors often get their money back: Prior to entering a debt solution people will attempt to repay the debt, or at least the interest and charges. During this period the creditors often get a large percentage of their money back.
Against Debt Being Written Off
My adversary fought a good battle and had me on the ropes with some of his arguments. He believes that people should not be allowed to write off any of their debt and that what is borrowed should be repaid. The reasons for this were
1. Cost of credit: When people don’t repay their debts then this has to be taken into account by the creditors, making credit more expensive for the people who do wish to repay their debt. This means hard working and honest consumers are punished for the minorities bad decision making.
2. Won’t everyone do it: He believes that if it’s just a simple case of borrowing money and then writing it off, won’t more people do it? If they do then what will society turn into if we apply for credit and simply refuse to repay it?
3. Morality: It’s immoral to take something and not repay it. Almost like stealing, debt write off is a legal loophole which enables people to wriggle free from their contractual obligations.
Debt Write Off: What do you think?
It’s important to note that anybody entering a debt write off solution will be penalised on their credit file which will mean future credit will be difficult to obtain, or very expensive. This lasts for 6 years, at least!
The argument for and against clearing unsecured debt which can’t be repaid is fierce. There are two sides to the story and most people have an opinion on the one they believe is correct.
However, what side of the fence are you on? Should people be allowed to start over and write off the debts they can’t afford? What stops the rest of society following in these footsteps and living the life they wish, just to clear their debt for free thereafter? Should somebody repay their debt until they die, even if that’s 40 years or more?
As always, there are no right answers, just healthy debate!