IVA vs Debt Management Plan: Which Is Best?

In short: an IVA is a formal solution that both you and your creditors must stick to, usually over five years, while a DMP is informal, so neither side is bound to it. Here’s the full comparison.

IVA vs DMP at a glance

Your debt amount and repayments

As a general guide you’ll usually need to owe at least £2,000 in unsecured debts to qualify for a DMP, and more than £7,000 for an IVA, owed to two or more creditors. Both normally require around £100 a month. Neither can clear secured debts such as mortgage arrears — those must be dealt with separately.

Informal vs formal

A DMP is informal: it can be set up without an insolvency practitioner, kept private, and changed or cancelled if your circumstances shift — but creditors can still take you to court. An IVA is formal and can only be run by a licensed insolvency practitioner. Both sides are bound by it, and creditors can’t take you to court once it’s in place — but you must keep to its terms or it could fail.

Creditor protection

With an IVA your creditors can’t chase you and must freeze interest and charges once it’s approved. With a DMP, freezing interest is a request creditors aren’t obliged to grant.

Length of the plan

A DMP runs until your debts are repaid in full, so it can last longer than an IVA, and you may repay more in total. An IVA usually runs for five years (sometimes six); you know from the outset what you’ll pay and when it will end.

Flexible vs fixed payments

DMP payments are flexible — you can adjust them if your hours drop or costs rise, or pay more if your income improves. An IVA payment is fixed from month one. If you hit difficulty there may be scope to reduce payments slightly or take a payment holiday, but an IVA will generally fail if you can’t maintain the agreed amount.

How much debt is written off?

This is the question we hear most. The honest answer is that it depends entirely on your circumstances and what your creditors agree to. At the end of an IVA, the remaining qualifying debts included in it are written off. With a DMP, nothing is written off — the plan simply ends once you’ve repaid what you owe.

Fees

Both involve set-up and management fees, included in your monthly payment rather than billed on top. An IVA generally costs more to run because it must be administered by a licensed insolvency practitioner.

Running the plan

A DMP can be run by a provider or by yourself — and some charities will set one up for free. If you want to manage it yourself, National Debtline offers free template letters and guidance.

Your credit rating

Both are likely to affect your credit rating. An IVA has a more serious effect and makes borrowing very difficult for its duration; a DMP also affects your score because you’re paying less than the original agreements. For the full picture, read an IVA and your credit rating. With an IVA you may also be asked to release equity or remortgage towards the end.

Public details

Anyone in an IVA is listed on the public Individual Insolvency Register. A DMP is kept confidential.

Am I eligible?

IVA — general criteria

• More than £7,000 of unsecured debt
• Can afford at least £100 a month
• Live in England, Wales or Northern Ireland (Scotland has its own solutions)
• Owe money to two or more creditors

DMP — general criteria

• More than £2,000 of unsecured debt
• Can afford a regular monthly payment
• Live in the UK
• Owe money to two or more creditors

So which is best?

If you need certainty, creditor protection and an end date — with larger debts — an IVA may suit you. If you want flexibility and expect to repay in a reasonable time, a DMP might fit. If you don’t own a home and have smaller debts, also look at a Debt Relief Order or how to deal with your debts yourself.

Free, independent debt advice is also available from MoneyHelper, StepChange, National Debtline and Citizens Advice.