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Debt Management Plan or IVA?

There are so many ways to deal with problem debt that figuring out which way is right for you can pose a huge challenge. One important decision you will need to make is whether to opt for a formal solution, or an informal one. Since formal debt solutions are legally binding to both you and your creditors, they are different to informal solutions in a few key ways.

One of the most popular formal debt solution is the Individual Voluntary Arrangement, or IVA. In fact, IVA use has been on the rise in past years, as more and more people who are struggling with debt opt for this solution rather than go through bankruptcy. On the other hand, the most popular informal solution is the Debt Management Plan, or DMP. To help you get a better idea of which solution would be the best fit for your circumstances, we outline some key differences below.

Protection from Creditors

When it comes to debt, people’s main source of anxiety tends to be what action creditors could take – whether harassing letters and phone calls, or visits from bailiffs and debt collectors.

  • IVAs

An IVA is a legally binding solution to problem debt, and once the majority of your creditors have agreed to the proposed IVA repayment plan, all of them are bound by its terms. This means they cannot take any legal action against you, such as petitioning to have you declared bankrupt, or sending bailiffs to your home. Once an IVA has come into effect, your creditors will no longer be able to contact you at all. Instead, they must relay any communication through the Insolvency Practitioner (IP) dealing with your case. An IVA also legally requires your creditors to freeze all interest and fees on your debts.

  • DMPs

Once you have a DMP established, you can expect less contact from your creditors, but this can take time, and they are not under any obligation to cease communications with you. Unlike IVAs, DMPs do not legally prevent your creditors from taking legal action against you, and they are not legally bound by the terms of the DMP. This means that they could, in theory, decide to stop the DMP at any time, or pursue bankruptcy. Your creditors may decide to freeze interest and fees on your debts during a DMP, but they are not legally obliged to do so.

Your Assets

Another important thing to bear in mind when choosing a debt solution is how this could affect your assets – especially if you are a homeowner.

  • IVA

Once an IVA has been established, your assets are legally protected – this is one of the main advantages IVAs have over bankruptcy. However, if you are a homeowner, and have a significant amount of equity in the property, you will likely have to release some or all of it in the final year of the IVA. Not being a home owner does not prevent you from getting an IVA, but you will be expected to make an extra year of payments or secure a lump sum from a third party in lieu of releasing equity from a property.

  • DMP

DMPs do not offer any protection for your assets. Your creditors could decide to end your DMP, and send bailiffs to your home or petition to make you bankrupt, which could involve the loss of your assets. This is unlikely if you keep up with your DMP payments, though, since creditors are likely to regain more of what they are owed through regular payments than by going through the process of seizing assets.

Plan Length

How long it will take to clear your debts is another important factor in deciding which solution to choose.

  • IVA

IVAs usually last for five years, at the end of which you will be debt free. IVAs can last an additional year if you do not own property, and must make an extra year of payments instead of releasing equity. Your IVA may also be extended by a few months if you take a break from making payments. These missed payments will usually be added to the end of the plan.

  • DMP

DMPs have no set length, but usually last no more than ten years. They tend to last longer than IVAs, however, because they require you to repay what you owe in its entirety, without unaffordable debt being written off. This means that, for relatively high levels of debt, DMPs tend to be more expensive than IVAs – especially if you choose to go through a private DMP provider.


Accessing credit again in the future could be vital to your financial plans, so it is worth considering the effect a debt solution might have on your credit score.

  • IVA

During the course of an IVA, you will not be able to access further credit without the permission of your IP. However, since you work out a manageable budget with them at the beginning of the IVA, you should be able to manage without further credit. If an emergency expense presents itself, you can always take a break from paying into your IVA in order to deal with it. Once your IVA is completed, you will be able to apply for credit again, but finding willing lenders may be challenging because your credit score will be negatively affected by using a debt solution. You will be able to rebuild your score, but can take time.

  • DMP

During a DMP, you will not be legally prevented from taking on further credit, but charity providers, such as PayPlan and StepChange, will stipulate that you do not as part of their agreement to help you with your debt. Like an IVA, a DMP will have a negative impact on your credit score, and it will take time to rebuild your score once the plan has finished.


Which debt solution you choose is ultimately your decision, but an IVA may be better if:

  • You do not feel able to repay your debt in full in a reasonable amount of time
  • Creditor harassment is having a serious impact on your life
  • You have a relatively high level of debt – £6,000 or more
  • You have a steady stream of disposable income which could be put towards debt repayments

On the other hand, a DMP may be the best choice if:

  • You feel able to repay what you owe in its entirety, given enough time and smaller instalments
  • You are not worried about continued contact with your creditors
  • You have a steady stream of disposable income which could be put towards debt repayments
  • You have debts of under £6,000

For more advice on whether an IVA or DMP could be the right solution for you, contact Creditfix on 0808 2085 198.

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