IVA or Debt Management Plan
Comparing the two debt solutions
Both Individual Voluntary Arrangements (IVAs) and Debt Management Plans (DMPs) involve you making repayments to your creditors, but through very different processes.
It’s important to make sure you are well informed of any solutions before going ahead, so we’ve highlighted some key points about these two solutions below.
Similarities
Key similarities include:
Monthly payments: Both solutions are designed for you to pay an affordable monthly amount towards your debts and any fees involved.
Consolidate your debts: Both plans see you consolidating your eligible debts into one plan to make things more manageable for you.
Include your unsecured debts: Both solutions are designed for unsecured debts – this means that secured debts and other priority payments are to be paid first before either of these plans.
Differences
Key differences include:
Formal / Informal: A DMP is an informal agreement, meaning that your creditors are not obliged to accept your proposal or stick to it. An IVA is a formal solution, which is legally binding for both you and your creditors.
End dates: An IVA has a clear end date, typically after 5 or 6 years. A DMP takes as long as is needed for you to pay off your debts, so varies from case to case.
Interest and Charges: An IVA involves creditors freezing your interest and charges for the duration, but on a DMP your creditors would not be obliged to do so.
Debt write off: An IVA is designed for you to have a portion of your debt written off once it is complete, whereas a DMP is designed for you to pay off your debts in full.
Creditor Contact: Your creditors are not allowed to contact you whilst you are on an IVA – they must speak to your Insolvency Practitioner direct. There are no rules to stop them contacting you if you’re on a DMP.
Qualifying Criteria
IVA
- An IVA requires a debt level of at least £6,000, owed to more than one creditor.
- You should have a monthly disposable income of at least £80.
- Only unsecured debts can be included in an IVA, so you must be able to demonstrate that you can afford your other debts and priority payments before your IVA payment.
Debt Management Plan
- You must have a disposable income to pay into your plan, but this amount depends on your individual DMP provider.
- It will be up to individual creditors to decide whether or not they accept your application to include their debts into a DMP.
- You should still cover secured and priority debts before any monthly DMP payment.
Can I have a DMP and an IVA at the same time?
It’s not possible for you to simultaneously enter a Debt Management Plan and an IVA. This is because whilst you are on an IVA, all of your unsecured debts will be included – so you shouldn’t have any left over that you would need a Debt Management Plan for.
If you were already on a DMP, there would be nothing stopping you from looking into an IVA and applying for one. It’s an informal solution, so you can apply for an IVA and cancel your DMP at any point.
This does not work the other way around though – if you are on an IVA, then you can not simply cancel this and choose to enter a different solution.
If you make an application for an IVA but this is rejected for any reason, then a Debt Management Plan might be a suitable alternative.
What next?
If you are struggling with debts, don’t hesitate to contact an experienced debt advice service. For many, a Debt Management Plan means paying out more money over a long period of time compared to an IVA, so it’s good to discuss all your available options before deciding on one.
We are IVA specialists, so if you would like to go ahead with this particular solution, we can help you apply for an IVA.
