IVA vs DMP

What is an IVA?

IVA is short for ‘Individual Voluntary Arrangement’ . It is an agreement made between yourself and the people you owe money to (your creditors)  to pay back your debts over a period of time (usually 5 years) . You must appoint a registered Insolvency Practitioner to negotiate with your creditors – depending on your circumstances they can often get a drastic reduction in the amount you owe.

 Most types of debts can be paid off through an IVA but there are some exceptions. See further down this page for more information

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The debts you can include in an IVA

The following types of debt can be included in an IVA

  • bank and building society loans and overdrafts
  • credit cards
  • personal loans
  • store cards
  • charge cards.
  • council tax arrears
  • tax debts
  • electricity and gas debts.

Amount of debt that can be included

The amount of debt you have has no maximum limit. However, your creditors are unlikely to agree to an IVA unless your total debt is more than £5,000

Any number of debts can be included in an IVA but most people granted an IVA usually have more than three different debts with different creditors.

Your insolvency practitioner will advise you on whether your debts are suitable for an IVA and will be happy to meet with you to discuss your exact requirements. Don’t worry, they won’t judge you or your circumstances, they do this on a daily basis with hundreds of clients and see it as a way of reducing your debt and helping you.

The Benefits

With the help of a skilled Insolvency Practitioner it is often possible to negotiate a significant reduction in your debt. (usually about 35%-50%, but occasionally up to 80%) This reduced debt is then repaid over a period of time – usually 5 years with no interest to be paid. The monthly payments are made to your Insolvency Practitioner who then passes the monthly payments on to your creditors. The practitioner will make a charge for this service which is added to your monthly payments.

Debts you can’t include

There are some debts that cannot be covered by an IVA. These are

  • Child maintenance arrears
  • child support arrears
  • student loans
  • Court fines.

What to do about debts you can’t include

These debts have to be paid separately in addition to your IVA repayments. They are taken into account when calculating how much you can afford to pay.

Joint debts

Joint debts are those debts that are in the name of more than one person (joint bank account overdraft is an example).
As an IVA can only cover one person it is not possible to include these debts in an IVA

It is sometimes possible to take out a joint IVA or both people can take out individual IVAs that are connected – these are called ‘interlocking’ IVAs. Your insolvency practitioner will be able to advise you about this.

Mortgages, secured loans and rent

Secured loans are debts which are secured against your home. (eg a mortgage) You can include secured loans, mortgage or rent arrears in an IVA but your creditor will have to give their permission – and most never agree to do so.

What is a Debt Management Plan

A Debt Management Plan is an agreement between you and your creditors to pay all of your debts.

Debt management plans are usually used when either:

  • you can only afford to pay creditors a small amount each month
  • you have debt problems but will be able to make repayments in a few months

You can arrange a plan with your creditors yourself or through a licensed debt management company for a fee. If you arrange this with a company:

  • you make regular payments to the company
  • the company shares the money out between your creditors

A debt management plan (DMP) helps you to manage your debts and pay them off at a more affordable rate by making reduced monthly payments.

Your insolvency practitioner will work with you to establish a budget that meets your household’s needs.

Benefits of a DMP

  • They incur less fees than an IVA or Bankruptcy
  • You’ll only pay what you can afford to your creditors.
  • If you’ve fallen behind with your household bills you can add the arrears to your DMP to help get your accounts back up to date. You’ll still need to make your regular ongoing monthly payments.
  • You’ll make one monthly payment to your insolvency pratitioner and they will manage the payments to your creditors for you
  • Your practitioner will review your DMP regularly to make sure you’re paying what you can afford

Risks of a DMP

  • Some of your creditors may still contact you
  • Most creditors will agree to reduce or stop interest and charges, but they don’t have to
  • If creditors continue adding interest and charges, this could increase the total amount you currently owe
  • Your creditors don’t have to agree to your reduced payments.
  • Your creditors may still take further court action against you, such as a County Court judgment (CCJ)
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