IVA Or DMP

Already in a DMP? Could you be better off in an IVA?**

With an IVA, you could be debt-free in just 5 years. 70% of your debt can be written off¹, and you pay the rest back in affordable monthly payments with no more interest added, no more threats of legal action, and no more hassle from your creditors.

You will have to stick to a tight budget, but your debt repayments will be taken care of, and you’ll still have enough money left over to live your life.

IVA’s aren’t the only alternative debt solutions available – check out other ways to deal with your debts here.

You’ll be committing to a 5 year government-approved plan and your IVA could fail if you miss payments, which could lead to your creditors petitioning for your bankruptcy. But there is flexibility in extreme circumstances if your situation changes.

Your IVA will be listed on the public Insolvency Register and recorded on your credit file, so your credit rating will be affected. But if you’ve already missed payments, you’ll probably already have a less-than-perfect credit rating anyway. And your IVA will be erased from your credit file after a set period of 6 years.

Interested? Click on the following links to find out more about IVAs:

If you’re already in a DMP with us, and would like to discuss the possibility of switching to an IVA, please call PayPlan on 0844 855 2163***.

If you aren’t already a PayPlan client, and need debt help, call us on 0800 280 2816, or complete and submit our debt help form and we will call you back.

We’ll re-assess your financial situation and recommend the best next steps for you. This could mean switching to an IVA – or another more suitable debt solution – or maybe simply sticking with your existing DMP.

What is the difference between an IVA and a DMP?

If you are facing debts and are unsure which is the best option to take, we’ve put together a rundown of the important differences between two of the most popular options of tackling unsecured debts;  Individual Voluntary Arrangements (IVAs) and a Debt Management Plans(DMPs).

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Below is a handy table to easily compare the two:

Individual Voluntary Arrangement (IVA) Debt Management Plan (DMP)
IVAs normally last for five years. DMPs will continue until the debt is paid back in full including repayment of interest and charges.
A large proportion of debt is written off at the end of the IVA. In a DMP all debt is repaid. There is no guarantee that interest and charges will be frozen by creditors.
Once the IVA has been approved, all unsecured creditors bound by the IVA are unable to take further legal action. As a DMP is an informal debt plan so creditors can pursue further legal action.
An IVA is legally binding so creditors cannot make any changes to your agreement once it has been approved. They can ask for modifications to your proposal but once accepted, the agreement is binding. A DMP is informal and creditors can dictate changes throughout the course of a plan.
With the exception of statements and legally obligated letters (changes in contact information or another party may deal with the debt payment) contact with your creditors will stop during your IVA. You should allow approximately 3 months after the approval of your IVA to allow creditor administration departments to update their system details. Creditors can at any point contact you throughout a DMP. They can also take legal action against you.
Your IVA will stay on your credit file for six years from the date it was approved or until it is finished should it go on for longer than six years. In a DMP you may face difficulty with your credit file for the duration of the plan. A default notice can be issued at any point during your DMP and will stay on your file for 6 years from the date the last default is issued.

Here are some other points to consider:

IVA

In an IVA, those with property, either mortgaged or owned outright, will be subject to an equitable clause as part of asset realisation to creditors. This will increase the return (referred to as a ‘dividend’) to your creditors. A large proportion of debt will still be written off.

If you are unsure contact us using PayPlan’s enquiry form or call us for more information.

IVAs are legally binding so your creditors cannot take legal action during your IVA. If you miss payments however or fail in your IVA, your creditors may make a request for your bankruptcy.

An IVA should not be taken lightly and requires co-operation with the Supervisor.

DMP

A DMP is a less formal debt plan and is not legally binding, there is no obligation for creditors to freeze interest rates and charges or stop default action and Payplan will do all that we can but cannot provide a guarantee creditors will freeze or reduce interest and charges. The advantage of a DMP is that it can offer more room for flexibility. A change in circumstances might impact the sustainability of an IVA but a DMP can remain open during difficult times.

DMP’s are not a form of Insolvency and so avoid formal insolvency proceedings that you would be subject to in bankruptcy or an IVA, however, a DMP does leave you open to possible legal action by creditors.

There is no obligation to release equitable interest in a DMP and no specific obligation to release other assets to your creditors.

Summary

So what’s the best option to take? The simple answer is that there is no definitive hard and fast rule.

One person suitable for a DMP may not be suitable for an IVA. There are several factors and criteria for both and your personal circumstances and preferences effect what is best for you.

Struggling with what to do? Don’t delay any further. PayPlan staff are fully trained to help you in explaining the available options and will recommend the best solution for you. If you’re facing debts you can no longer manage, contact us today.

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Examples of people who switched their plans

Case Study: Switching from a DMP to an IVA

We originally helped a shop assistant set up a Debt Management Plan (DMP). She owed £15,000 (mainly to credit cards) and, after her living costs were taken into account, could afford to make a monthly payment of £200 to her debts. She initially preferred a DMP as she felt she could pay her debts back in full.

However, even though creditors typically freeze interest and charges in a DMP, in her case one of her creditors was continuing to add interest and charges. This meant it would take a lot longer than expected to pay the debts back in full.

In view of this, we reviewed the client’s debt solution options with them. The client decided to proceed with an IVA, meaning all interest and charges were frozen and ensured that the client paid back their unsecured debts in five years.

Case Study: Switching from a DMP due to legal action

We helped a self-employed taxi driver set up a Debt Management Plan (DMP). He owed £20,000, mainly on unsecured loans and credit cards but he also owed some tax arrears.

After his living costs, he could afford to make a monthly payment of £300 to his debts. He owned his own home where he lived with his wife and child. He originally preferred a DMP as he felt he could pay his debts back in full. However, even though creditors typically do not take legal action when a client is in a DMP, the tax authorities were threatening to make the client bankrupt.

If he was made bankrupt, then he would lose his home and also his taxi.

As soon as we were aware of this, we reviewed the client’s debt solution options with them. The client decided to proceed with an IVA, which would result in all legal action being stopped and the tax arrears being included in the IVA.

The client retained their home, their taxi and continued trading.


*In the case of a one-off lump sum settlement
**PayPlan refer clients to PayPlan Bespoke Solutions Limited and PayPlan Partnership Limited for IVAs.

¹In 2014, the average amount of debt written off for 4,380 IVA clients referred by Totemic Limited was 70.4%.

***Calls to 0844 numbers cost 7p per minute plus your phone company’s access charge.