Can a company wipe my credit card debt?
"I've been contacted by a company saying they can wipe my credit card debt because the card provider broke the law.
"Is it a scam?"
Getting an entire debt written off on a technicality is a dream for anyone bending over backwards to pay back their borrowing.
Unfortunately, it's a dream that's unlikely to be fulfilled.
There are very few circumstances in which a debt can be written off entirely or even deemed unenforceable, which is what the question above seems to refer to and means that the creditor cannot demand payment through the courts unless they can produce specific forms of evidence.
In the vast majority of cases, the promise of getting a debt wiped or written off is being used either to get customers through the door and sell them formal debt management plans or as bait in a criminal scam.
How debt management firms use writing off
Let's start with the first option.
If you've even watched daytime TV you'll know that debt management companies often promise that they can write off debt.
These are legal, legitimate companies and they can look for legal loopholes to declare a debt unenforcable. However, since such loopholes are rare what they primarily mean by write off isn't that the debt won't have to be paid back. Instead, they're offering to negotiate with creditors on the debtor's behalf.
During that process - which usually forms part of an Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO) or consolidation loan (explained here) - lenders may agree to reduce the amount borrowers owe in return for a guarantee that the debt will be partly paid off.
In summary, an agreement with such a company usually means that the consumer will continue to make monthly repayments towards the debt or debts and, again usually, also pay a monthly fee for the debt management company's services.
That's not writing off as we'd usually think of it.
Note that the companies we're talking about here, keen to reel in new customers with the promise of a shortcut to being debt free, are profit making debt management companies.
It's ironic, then, that free debt advice charities don't use the same language despite the fact that, with no fees to pay, they could get those in debt out much more quickly.
See our debt advice guide for more general information about these types of services, it's available here, and this guide, written for us by the Debt Advice Foundation, for more information on the differences between debt management firms and debt help charities.
Misleading debt management
In the description above, we haven't exactly painted debt management firms in the best light.
But it's not entirely without justification.
As we'll say again below, claims that debts can be reduced or written off 'guaranteed' should be treated with the utmost suspicion and debt management firms often make such claims to some degree.
Perhaps sometimes even without meaning to, firms often seem to mislead their customers into thinking that it's highly likely that debts will be reduced significantly.
In fact, it's often highly likely that debts will only be reduced by a small amount. And either way, after signing up for the service, the debtor must pay the company its fee.
Where a company has been misleading, consumers have the right to complain and be compensated.
However, a few cases released by the Financial Ombudsman Service (FOS) last year illustrate exactly what we said above: companies know the boundaries of acceptability and customers sometimes hear what they want to hear.
In one case, the FOS ruled that a debt management customer should get her money back after it reviewed the contract and advertising literature she received and found it to be "unclear".
In a similar case, however, the ombudsman ruled that the debt management company had been clear that its offer of help was not a guarantee that it could get rid of debts entirely.
Not a scam but suspicious
All in all, legitimate firms can offer services which look into whether a debt could be declared unenforceable or significantly reduced through negotiation with the creditor.
However, they can't guarantee either one.
It's not a scam but it is reason to be suspicious of the motives behind the offer of debt help.
Spotting a debt scam
Another reason to be suspicious is that promises to write off debt can be attempts to grab money from people perceived as vulnerable.
Like fake loan scams, fake debt help promises to throw those in debt a lifeline. Pity it's attached to a dead weight.
3 million people fall victim to scams every year and lose an average of £850 each. Here are a few telltale signs which indicate that an offer of debt help is actually an attempt to take your money and run:
- Cold calls, texts and emails If an offer appears unexpectedly from an unknown source then it should certainly be questioned. Avoid giving away any personal details in response to unsolicited contact. Ideally, don't reply at all.
- Guarantees No company will be able to guarantee that they can write off a debt, especially without seeing the details.
- Time limits Criminals often use limited time offers or just simple pressure to get people to make a decision quickly.
- Upfront payments A legitimate company would not usually ask for an advance sum and would certainly never ask for bank details. Be very wary of anyone asking for financial or personal documents or details.
- 'No fee' services We've heard from people who were told that they could pay to get their credit card debt wiped. Use the indebted card to pay, the scammers said, and when the debt is wiped, the fee's wiped too.
All in all, if it sounds too good to be true, it probably is.
The Action Fraud website has more information about detecting and avoiding scams. You can also report a scam to them if you've been a victim or you want to prevent other people from being ripped off.
Legitimate ways to wipe debt
Having said everything, there actually are, or have been up until recently, some legitimate ways to make debts unenforcable without the creditor's consent.
The Limitations Act
For example, The Limitations Act makes debts unenforceable if they have been dormant for six years.
Dormancy means that those that owe the money haven't made any kind of payment for the debt or admitted to the creditor that they owe the money.
In addition the creditor - who wants the money - cannot have gone as far as obtaining a County Court Judgement (CCJ) in order to recover the debt.
Note, however, that this is not an invitation to ignore debts!
It is highly unlikely that a lender would let a debt run without any correspondence for six years without obtaining a CCJ and any conscious effort to shirk the debt constitutes debt avoidance which is an offence in itself.
In addition, this law only makes the debt unenforceable. It doesn't wipe it off.
That means that it could be made enforceable again if relevant documents - for example, a letter admitting the debt - were to surface.
All in all, the law protects people from debts which they haven't had any legitimate opportunity to know about or repay. Most people are never likely to face this kind of debt.
The Consumer Credit Act
Until 2010, another popular method for writing off debts was exploiting loopholes in the Consumer Credit Act.
Untangling borrowing from before April 2007 became a multimillion pound industry and many outstanding debts were actually wiped, or at least made unenforceable, as a result of lost or unfair agreements.
As you can see in an extract from a BBC Panorama programme from 2008 below, many people got out of paying for thousands of pounds of debt this way.
However, following some landmark cases in late 2009 and throughout 2010, lenders are now much less likely to agree to these kind of approaches.
The Office of Fair Trading has even recommended that companies making these promises should be disregarded entirely.
As we update this article in early 2014, it's highly likely that most companies claiming to use the Consumer Credit Act actually fall into one of the two categories above: debt management firms actually offering a very different service or scammers hoping to make some quick cash.