What’s Better – an IVA or DRO?

IVAs and DROs both have their advantages and disadvantages depending on your financial circumstances. Which debt solution is better for you, an IVA or DRO?

When looking for a debt solution, you’re presented with many different options all with varying advantages and disadvantages. Weighing up the best way to get your finances back on track can be a difficult task. To make life a little bit easier, we’ve summed up the main advantages and disadvantages of two popular debt solutions; an individual voluntary arrangement (IVA) and a debt relief order (DRO).

The main differences between an IVA and a DRO

To give you an overview and make your choice a little easier,the main differences between an IVA and a DRO are:

  • An IVA works well for those with unsecured debts over £6,000 to multiple creditors, who own their own assets and can afford to make some payment to their creditors;
  • A DRO might be best suited to you only if you can’t afford any repayment and you don’t own a home or assets over £1,000 and have unsecured debts of under £20,000;

If you’re already considering whether to go ahead with an IVA, you can fill in our online form to find out whether you qualify – our experienced advisors have heard every situation and can support you to make the decision about which debt solution is best for you.

In short, whether you get an IVA or DRO is largely dependent on your disposable income as well as if you’re a homeowner, or have any assets. An IVA is better suited to those who possess unsecured debts over £6,000, have at least 2 different creditors, and may own a house or an asset of value. These can often be protected in the agreement. This can be an ideal option for you if you have a regular income which can cover your repayments every month. Our advisors are experienced at conducting affordability tests to make sure that you can afford the payments and it’s well suited to your needs.

A DRO is better suited to those who cannot afford any kind of repayment and don’t own a home or assets over £1,000. You must have unsecured debts under £20,000 and have a limited disposable income (no more than £50 after you’ve paid your household expenses).

IVA DRO

Duration

6 years.

1 year.

To qualify

Minimum of £6,000 unsecured debt.

You owe £20,000 or less.

Regular, stable income.

You do not own a house.

More than one creditor.

You have less than £50 disposable income at the end of each month after paying tax, national insurance, and household expenses.

Your assets aren’t worth more than £1,000 in total.

You haven’t had a DRO in the last 6 years.

Debts which can be in included

Arrears on household bills (rent gas, electric, telephone and council tax), credit cards, payday loans, overdrafts, catalogues, store cards, benefit overpayments, items bought on finance, debts to family or friends.

Arrears on household bills (rent gas, electric, telephone and council tax), credit cards, payday loans, overdrafts, catalogues, store cards, benefit overpayments, hire purchase agreements, items bought on finance, debts to family or friends.

Debts which can’t be included

Mortgages and secured loans, hire purchase agreements, court fines, TV license arrears, student loans, child support arrears, social fund loans.

Court fines, TV license arrears, student loans, child support arrears, social fund loans.

Legally binding

Yes.

Yes.

Assets

Protected.

Can only have £1,000 total worth.

Interest and Charges

Frozen.

Frozen.

Creditor contact

Stopped.

Stopped.

Missed debts

Can be added.

Cannot be added.

The advantages and disadvantages of an IVA and a DRO

Therefore, it makes more sense to go with an IVA if you are a homeowner or have an asset you want to protect. Also, hire purchase agreements are included within the DRO, but they are not included within an IVA. You are also able to add your partner’s debt to an IVA but not in a DRO.

Benefits of an IVA

There are many benefits to an IVA. Stopping creditors chasing you for payments and having just one affordable monthly repayment can take a significant amount of stress away. Upon successful completion of the IVA any remaining unsecured debts also get written off. On average our customers will write off around £10,500* worth of unsecured debt.

  • Creditors will not be able to contact you regarding payment and must go through your Insolvency Practitioner.
  • You make one affordable monthly repayment worked out between you, your Insolvency Practitioner, and creditors;
  • Once you’ve made your final IVA payment any remaining unsecured debt is written off;
  • If you own a home, usually, you will usually be able to keep it;
  • There are no set up fees before your IVA is agreed.

* Average unsecured debt anticipated to be written off for IVAs approved between 1 January 2020 and 31 December 2020 is £10,568, based upon successful completion.

Disadvantages of an IVA

  • You will be expected to keep your expenses within a monthly budget whilst in the IVA. We’ll make sure you can afford your reasonable expenses, though;
  • If you can’t keep up with repayments your IVA could fail and you may be in a worse position as your creditors could add the interest and charges which would have applied to your debts. This is why it’s important to us to check your affordability before you go ahead with the IVA – our advisors are experienced at checking affordability;
  • Your credit rating will be negatively affected for six years from the date the IVA is approved. This is also true for a DRO. In the long-term, however, there may be advantages to having an IVA so that you can repay your debts and later rebuild your credit score;
  • If your IVA fails, your creditors could request your insolvency practitioner petitions for your bankruptcy.
  • Your personal details regarding the IVA will appear on a public register.

Our advisors can talk to you about your individual circumstances to help you work out whether the advantages of the IVA outweigh these challenges. Let us know your situation and we will get in touch to help you.

Risks and benefits of an IVA

Benefits of an IVA Risks of an IVA

You make one affordable monthly repayment worked out between you, your debt advisor, and creditors.

If you can’t keep up with repayments your IVA could fail and you may be in a worse position as you will have to pay fees to an insolvency practitioner.

If you own a home, usually, you will be able to keep it.

Your credit rating will be negatively affected for six years.

There are no set up fees before your IVA is agreed.

If your IVA fails, your creditors could get your insolvency practitioner to petition for your bankruptcy.

Once you’ve made your final payment any unsecured debt is written off.

Your monthly budget will be restricted by your repayment plan.

Creditors will not be able to contact you and must go through your debt advisor.

Your IVA is on a public register (but it is unlikely people check it).

There are many benefits to an IVA. Stopping creditor contact and having just one affordable monthly repayment take a significant amount of stress away from debt. At the end of the six years, any remaining debts also get written off. On average we write off around £10,500* worth of debt per customer! As you have tried to pay back as much as you feasibly can, IVAs have much less social stigma around them than bankruptcy. However, if you fail to keep up with IVA payments then the agreement could fail which can put you in a worse position. That means, before agreeing to an IVA, you need to ensure you can keep up with the monthly repayment which has been agreed.

*Average debt write-off for customers brought on between 1 January 2020 and 31 December 2020 £10,568.

Risks and benefits of a DRO

Benefits of a DRO Risks of a DRO

Creditors cannot take any further action against you without the court’s permission.

The DRO could be revoked if you don’t cooperate with your creditors and advisor during the year it’s enforced.

An affordable and realistic formal proposal of repayment will be worked out between you, your debt advisors, and creditors for a year.

You will be committing an offence if you take out credit of more than £500 and don’t disclose it to your DRO.

Your DRO freezes debt repayments and interest for 12 months.

Your credit rating will be negatively affected for six years.

At the end of the DRO, if your situation hasn’t changed and you’re not able to pay the debts off, all debts will be written off.

Your DRO is entered on a public register.

DRO is a cheaper alternative to bankruptcy.

You will need to pay a one-off non-refundable payment of £90.

If you need help deciding which debt solution is right for you, we have a team of over 100 people. Our company has more than 15 years of experience in dealing with debt across our companies. We’ve heard many different situations and can help you regain control of your finances so you can focus on the things that matter to you.

How does a DRO or an IVA affect your credit rating?

Both an IVA and a DRO are likely to negatively affect your credit rating for six years.

After successfully completing an IVA, or DRO it will then be possible to start to rebuild your credit rating.

Is an IVA right for you?

If you have debts that you’re struggling to repay, but you are able to make an affordable monthly payment, then an IVA could help you to get control of your finances. We support our customers on their journey to financial freedom – get in touch with us today for a no-obligation chat about how to get help with your debt.

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