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IVA or Debt Management Plan (DMP)?
If you live in England, Wales or Northern Ireland and are struggling to get by under the burden of exorbitant debt, there are options which can help you move on with your life and get back to affording your monthly bills. Two of the most popular plans are Individual Voluntary Arrangements (IVAs) and Debt Management Plans (DMPs). If you are just starting to investigate your options, it can be confusing knowing where to start and what might be right for you.
So let’s break it down and look at the differences between IVAs and DMPs. We’ll look at the pros and cons for each and talk about which plans are right for different situations.
What is an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement is a formal, binding legal agreement, unlike a DMP. With an IVA, you pay a reduced monthly sum to your creditors for a period of around five years. If you keep up with your required payments for the duration of the IVA, many of your remaining secured debts at the conclusion of the IVA may be forgiven. The slate will be wiped clean, and you can move on with your life.
Pros of an IVA:
- With an IVA, you pay only an amount you can afford each month. You do not have to pay it directly to your creditors. Everything is consolidated into one simple affordable monthly payment which you make to your insolvency practitioner.
- You no longer have to deal with your creditors at all. They may no longer contact you in person, through the mail, or on the phone. If they do contact you, you can simply refer them to your IP.
- After the IVA is complete, a significant portion of your remaining secured debts will typically be written off. You can get back to doing what you enjoy without worrying about the past.
Cons of an IVA:
- An IVA is not as flexible as a DMP. Under certain circumstances, you may not be able to get adjustments to the IVA that you could with the DMP, which may result in failure.
- Since an IVA is a formal binding agreement and a form of insolvency, you do need to go through formal proceedings.
- As a form of insolvency this is noted on your credit record for a period of 6 years. However, if you are considering a debt solution it is likely that your credit rating is already affected.
- If you have a mortgage, you may be forced at the end of the IVA to pull equity from your home to pay off your creditors. If you have a car, you can usually keep it, but in certain situations you may be asked to trade it in for a less expensive model.
What is a Debt Management Plan (DMP)?
A Debt Management Plan is a fairly informal agreement you make with your creditors to pay back the debts you owe at a monthly rate which you can afford. A DMP is not considered a form of insolvency, so that means you get to avoid formal proceedings. With a DMP, you are required to pay back the debts you owe in full, and may need to pay back interest and fees as well.
Pros of a DMP:
- A DMP offers plenty of flexibility. It can go on as long as you need it to, so long as your creditors agree. If your situation changes (income levels go up or down, etc.), the DMP can be adjusted to suit your needs.
- You get to avoid formal insolvency proceedings since a DMP is not considered to be a form of insolvency.
- You are under no obligation with a DMP to release your assets. If you are worried about being required to sell property to finance an IVA, you may feel more secure with a DMP.
Cons of a DMP:
- With a DMP, your debts will not be forgiven. You will have to pay them all, along with interest and fees. Since the DMP is not a legally binding agreement, your creditors may even hike up your interest and tack on additional fees over time.
- Creditors may demand changes during the course of your DMP. You have no way to predict these changes or know if you can deal with them. There is no legally binding agreement, so you are at their mercy.
- You may face challenges involving your credit file throughout the process.
- You may still have to deal with your creditors in person. They can still call you, write you, and speak to you in person. This can be emotionally draining.
Which Is Right For You, a DMP or an IVA?
Generally speaking, if you have a smaller amount of debt, somewhere between £5,000-£8,000, a DMP may make more sense for you than an IVA. If on the other hand you owe £8,000 or more, an IVA may be a better move.
At Carrington Dean, we have handled tens of thousands of cases like yours. We have helped insolvent citizens throughout England, Wales and Northern Ireland choose a plan which works for them. We can help you figure out whether an IVA or DMP would be the best choice given your financial situation, set it up for you, and deal with your creditors on your behalf. If you are ready to get back on track and look toward the future without being weighed down by the past, contact us today.