Considering an IVA or DMP?
An Individual Voluntary Arrangement (IVA) and a Debt Management Plan (DMP) are two very different forms of debt resolution. The advantages and disadvantages of both can be argued, however which one is best depends totally on the person and their financial situation.
In 2018, Personal insolvencies totalled 115,299, a 16.2% rise on 2017, the Insolvency Service said. There were 71,034 IVAs in 2018, (59,220 - 2017) a 19.9% increase on the year before, and the highest annual level recorded since IVAs were first introduced in 1986. You can find out more about the rise in personal insolvencies in our blog!
What are they?
An IVA is a formal, legally binding agreement with your creditors in which you agree to pay off all, or a sum of your debts at an affordable rate.
A DMP is an informal agreement with your creditors to pay back all your debt in monthly instalments. A DMP is not legally binding therefore it can be cancelled at any time.
Are there specific criteria to be eligible for these arrangements?
For an IVA you must;
- Have a minimum of £5,000 worth of unsecured debt
- Owe at least two creditors
- Have an available monthly surplus of at least £85
- Be 18+
A DMP is less specific in regards to criteria, you will likely qualify for a DMP if;
- You can’t afford your existing unsecured debt repayments
- You can still afford lower payments each month
- You can afford to repay those debts in full within a reasonable period of time
Is there a set-up fee?
An IVA is prepared and supervised by an Insolvency Practitioner (IP) so there is a fee. There is a nominee fee which is the fee for putting together the proposal and presenting it to your creditors. In addition to this there is a supervisor fee which is the ongoing fee for managing your plan and liaising with your creditors, the cost of this will depend on the level of your debt. There are also other costs known as expenses and disbursements which are paid to third parties during the course of your IVA for various reasons, such as insurance and registration to the Insolvency Service.
A DMP is often free to set up as they are normally set up by charities who are paid directly by banks. However, some commercial DMP providers will charge a setup fee as they work out what you can afford to pay and negotiate this with your creditors, professional services often come with a cost.
Who supervises them?
An IVA is supervised by an insolvency practitioner (IP) who are licensed and authorised to act in relation to an insolvent individual.
A DMP is often managed by companies known as debt management plan operators or providers who negotiate with your creditors and manage payments.
How long do these arrangements last?
In an IVA the number of monthly payments is fixed and an IVA usually runs for the course of five or six years depending on whether or not you have equity in your property which can be released into the IVA. An IVA can be completed in less than 12 months if there is a lump sum settlement available.
A DMP is an arrangement which aims to reduce monthly payments therefore it usually takes much longer to repay debts. It is a possibility because of this flexibility of this arrangement that you could end up in debt for a substantial amount of time with no real prospect of becoming debt free.
How much are the payments?
For an IVA the monthly payments will be dependent on the amount of money left over once your essential living costs have been deducted from your income.
A DMP is less rigid and requires one affordable monthly contribution to creditors.
Is any of the debt written off?
In an IVA a percentage of your debt is written off, at Aperture, we have in the past, written off up to 85% of client’s debt off, a substantial amount!
In a DMP you repay your debts in full.
What debts are included?
Debts that can be included in your IVA are as follows;
- Unsecured debts - catalogues, personal loans, overdrafts, credit cards, gas and electric arrears, council tax arrears, water arrears, payday loans, store cards, income tax and national insurance arrears, tax credit or benefit overpayment, debts to family and friends, hire purchase and mortgage shortfalls and rent arrears
Debts that can be included in your DMP are as follows;
- Credit cards, personal loans, catalogue debts, store cards, overdrafts, payday loans and doorstep loans
What action can creditors take against you within these arrangement?
All creditors included within an IVA are legally bound by it awarding you legal protection from further creditor action. You will receive no further contact from unsecured creditors.
By reaching an agreement with your creditors a DMP may suspend actions against you such as County Court Judgement, however creditors can still contact you and can continue the debt collection process. Creditors can still take action against you during the DMP and frozen interest and charges on debt is not guaranteed. You can read the damaging effect intimidating and threatening letters from lenders can have on people here.
Once an IVA has been established, your assets are legally protected – this is one of the main advantages of an IVA.
A DMP does 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.
Both an IVA and a DMP will affect your credit rating - which you can only start to rebuild once you have dealt with your debt (a process that will often begin sooner in an IVA).
An IVA will show on your credit file for six years after approval. When an IVA is complete you will receive a Certificate of Completion as proof you have successfully completed your arrangement.
A DMP isn’t specifically registered on your credit file but the reduced payments could impact on a few different areas of your credit file. Details of court action, defaults or missed payments will be removed six years from the date it happened, even if the debt hasn’t been fully repaid.
An IVA is public information and will be listed on the Individual Insolvency Register which is accessible to all.
A DMP is not shared on any public information sites and people will only be made aware about it if you tell them.
When deciding which debt solution is right for you, you should always seek expert advice before you make any rash decisions.
If you feel that an IVA may be the best option for you, you can contact us on 0333 939 7920 and speak to one of our expert advisers who can help get the ball rolling and help you work towards becoming debt free.