IVA or DMP?

An IVA and DMP are two very different debt solutions. To decide which one is best for you, here are nine things to consider.

By reading this article, you’ve already decided to do something about your debts. Arguably, you’ve made the hardest choice already as we know that people often wait months – sometimes even years – before coming to the same conclusion.

Now that you’ve made this decision, however, you’ve got to make another one: Do you choose an IVA or DMP?

What do IVA and DMP stand for?

An IVA stands for ‘Individual Voluntary Arrangement’ while DMP is an abbreviation of ‘Debt Management Plan’. Both of those solutions are designed to deal with your debts but they go about it in very different ways.

How is an IVA different to a debt management plan?

The main difference when it comes to these solutions is that an IVA is a legally binding arrangement. This means, once approved, all parties including your creditors must abide to the terms. A Debt Management Plan, on the other hand, is not. It’s a less formal agreement which lenders can back out of at any time.

The main benefit of a DMP is that – without legal requirements – it’s far more flexible than an IVA. If your circumstances change and you need to alter the repayments on the plan, you should be able to do so.

Otherwise, here are the main differences between an IVA and a DMP:

Protection from creditors

With an IVA, you’re protected from your creditors. This isn’t true with a DMP though and you could still face legal action from these organisations.

Freezes interest rates and charges

Interest rates and charges are frozen with an IVA. This is not guaranteed with a DMP though.

Length of policy

IVAs generally last between five and six years. A DMP will last until the debt is paid off.

Debt write-off

Once the IVA ends, any remaining debts are written off. With a DMP, no amount is written off.

Contact with creditors

With an IVA, direct contact with your creditors should stop. This means no more demands for repayment or letters. With a DMP though, lenders can still chase you for money.

Asset protection

Your assets are protected during an IVA. However, you may be required to release equity from your property if you are a homeowner. A DMP does not protect your assets.

Who manages the plan?

You can manage a DMP yourself or run it through a third party. With an IVA, this is administered through a qualified insolvency practitioner.

Who knows about this?

IVAs are entered onto a public database called the Insolvency Register which is searchable by anyone. A DMP is kept private.

Setup fees

An IVA is generally more expensive to set up than a debt management plan.

Which one do you qualify for?

If you want to apply for a Debt Management Plan, there aren’t many requirements. Just as long as you can afford to make payments to your creditors, then you should be eligible. There are several qualifying criteria for an IVA though:

  • You should have combined debts of at least £6,000.
  • You should have a regular, sustainable source of income.
  • From your creditors’ point of view, an IVA is better than bankruptcy.
  • You owe money to more than one creditor.
  • You are based in either England, Wales, or Northern Ireland.

Is a DMP better than an IVA?

Whether or not a DMP is ‘better’ than an IVA depends on your viewpoint and financial circumstances. There are certain situations where one might be more suitable than the other though:

A DMP might be more suitable if:

  • The value of your debts is under £6,000.
  • You feel, ultimately, you can repay your creditors through a reduced payment.
  • You have a reliable source of income which can be used to repay your lenders.

An IVA might be more suitable if:

  • Your creditors are in regular contact with demands for repayment.
  • The value of your debts exceeds £6,000.
  • You do not think it’s possible to repay your creditors in a reasonable time.
  • You have a reliable source of income for the IVA repayments.

What other options do you have?

Although you seem to be torn between an IVA and DMP, there are other debt solutions available. You may wish to investigate these before making a decision. However, once you’ve made up your mind and want to do something about your debts, get in touch with us when you’re ready.

We can evaluate your options and help determine which is best for you.

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