The difference between an IVA and debt management plan
Published Fri, Sep 23, 2016 Updated Tue, Feb 16, 2021
Many people believe an Individual Voluntary Arrangement (IVA) and a Debt Management Plan (DMP) are effectively the same thing. But an IVA is more “final” than a DMP and a lot more serious. There is a difference between an IVA and debt management plan. In fact, there are several differences between the two and here they are…
Unlike a DMP, an IVA is legally binding. This can work in your favour as it means creditors can’t add any extra fees, take further action or contact you in any way. But with a DMP creditors aren’t legally bound to any contract so they can pursue you for the money any time – including the appointment of debt collectors and contacting you via phone, email or post.
Length of time
An IVA usually lasts 5 years – even if the debt isn’t fully paid off by the end. A DMP is continuous and only ends when all debts are fully repaid. But an IVA is on the Insolvency Register for a year, whereas a DMP remains private.
An IVA will stay on your credit file for six years, which usually means it’s there for a full year if you have a 5 year IVA. If your IVA is longer, say 7 years, then it will stay on your credit file for 7 years. After your IVA finishes and it is taken off your credit file, you will effectively be starting from scratch. However, with a DMP you’re vulnerable to defaults on your account as some creditors may not accept your repayment plan even if you are paying them. Any default notices will stay on your credit file for 6 years from the date of issue.
You’ll be required to keep repaying your debt in your DMP until everything is cleared, but with an IVA a proportion of your debt may be written off. Creditors can’t add any more interest rates or fees to your debts if you have an IVA, but they can if you have a DMP.
An IVA needs 75% of the creditors to approve it before it can go ahead, whereas a DMP doesn’t necessarily need the creditor’s approval to go ahead. You can still make repayments to your creditors using a DMP even if they don’t agree to your proposed plan. If you’re using a DMP company then they will still pay your creditors even if they haven’t confirmed.
Minimum debt amount
If your debt is £6,000 or more then you’re likely to be approved for an IVA – especially if you’re receive a regular, stable income. With a DMP you can owe any amount of money – making it a flexible option for those of you with debts under £6,000