When debts become unmanageable, there are formal solutions available in the UK. Two of the most common are Individual Voluntary Arrangements (IVAs) and Debt Management Plans (DMPs). They are quite different — understanding the difference matters before making any decision.
What is a Debt Management Plan (DMP)?
A DMP is an informal agreement between you and your creditors, usually managed by a debt advice charity or fee-free service. You make one affordable monthly payment to the plan manager, who distributes it to your creditors. Interest and charges may be frozen by agreement. A DMP is flexible — you can change payments if your circumstances change, and you pay back the full amount owed (just at a slower rate).
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a legally binding insolvency arrangement between you and your creditors, set up by a licensed Insolvency Practitioner. You make agreed monthly payments for a set period (usually five or six years). Any remaining debt at the end of the IVA is written off. It requires creditors holding 75% of the debt by value to agree. An IVA is recorded on the Insolvency Register and has serious effects on your credit file.
Key differences
- Legal status: a DMP is informal; an IVA is a formal, legally binding insolvency procedure
- Debt write-off: with a DMP you repay everything (possibly without interest); with an IVA, remaining debt after the term is written off
- Cost: free debt charities offer DMPs at no cost; IVAs involve fees paid to an Insolvency Practitioner, usually taken from your monthly payments
- Credit impact: both affect your credit file, but an IVA also appears on the public Insolvency Register
- Flexibility: DMPs can be adjusted; IVAs are harder to change once agreed
- Asset impact: IVAs may require you to release equity in your home in the final year — DMPs generally do not
Which is right for you?
Only a qualified debt adviser can help you work out which solution — if either — is appropriate for your specific situation. Bankruptcy is another option not covered here. Free debt advice services will not push you towards any particular solution. Some commercial IVA companies may. Always start with a free service.