Which debt solution is right for you?

If you’re struggling with debt, choosing the right solution can feel overwhelming. That’s where we come in. At PayPlan, we help you understand your options and find the best path forward for your circumstances.

Here’s a clear, step-by-step guide comparing IVAs and DROs to help you make an informed choice.

What’s the difference between an IVA and a DRO?

• An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay part of your debts in affordable monthly payments over a fixed term.
• A Debt Relief Order (DRO) is designed for people with low income and few assets. It allows debts to be written off after 12 months without making any payments.

How do they work?

IVA

• Your Insolvency Practitioner (IP) proposes a plan to your creditors.
• Of all the creditors who vote on your IVA Proposal, if at least 75% (by value) agree to your IVA proposal, all your creditors have to accept the terms of the IVA Proposal, including any who voted to reject the proposal or didn’t vote at all.
• You make monthly payments, typically for five years.
• If your IVA isn’t approved, we’ll help you explore other options.

DRO

• You apply through an approved intermediary
• There’s no monthly payments
• The DRO lasts 12 months and debts are written off after that if your situation hasn’t changed
• You must keep the Insolvency Service updated throughout

Eligibility

IVA

• Usually owe at least £7,000 to two or more creditors
• Can afford £50 or more per month
• Have a steady income (whether that’s through employment, pension or benefits)

DRO

• Owe £50,000 or less
• £2,000 or less in assets
• Car value under £4,000
• Monthly disposable income £75 or less.
• Must not own a property
• Must live or have lived/worked in England, Wales or NI in the last three years
• Must not have had a DRO in the last six years.

Impact on credit score

Both IVAs and DROs appear on your credit report for six years from the date they begin. This may affect your ability to borrow during and after the plan.

Monthly payments

• IVA – you make one affordable monthly payment based on your budget
• DRO – you don’t make any payments during the 12-month term

How long do they last?

• IVA – typically five years (can extend to six years for homeowners with a certain level of equity)
• DRO – 12 months (called the “moratorium period”)

What happens at the end?

 Any remaining debt included in the arrangement is legally written off once your IVA or DRO is successfully completed.

Are there any fees?

• IVA – yes, fees are included in your monthly payments and you won’t be asked to pay anything upfront. Click here to know more about the fees in an IVA.
• DRO – no application or management fee is charged by the Insolvency Service.

Will my creditors still contact me?

Both solutions offer legal protection from creditor contact, interest and enforcement action. You may still receive automated letters early on, but this should stop once your plan is updated on their systems. They’re still legally obligated to send you certain communications such as annual statements, but they can’t chase you for payments or take legal action against you.

Do I need to stick to a budget?

Yes – both IVAs and DROs require you to follow a realistic budget:

• IVAs are reviewed annually to reflect changes in your circumstances.
• DROs require to notify the Insolvency Service of any changes during the 12 months.

Can I keep my household items?

Yes – both solutions protect essential items like furniture, electronics and personal belongings. In a DRO, you must not own non-essential assets worth more than £2,000 in total.

What about my home or mortgage?

• IVA – you can usually keep your home. If you have equity, your IVA may be extended by 12 months, depending on how much you have.
• DRO – you’re not eligible for a DRO if you own a property.  

How will it affect my tenancy?

• IVA – unlikely to affect current tenancy, you can prioritise rent in your budget.
• DRO – rent arrears are included. If this breaches your tenancy agreement, your landlord may take action, so it’s best to speak with them beforehand.

What happens to my car?

• IVA – you can usually keep your car, even on finance, as long as it’s essential and fits your budget.
• DRO – you can keep a car worth up to £4,000. Vehicles above that value may affect eligibility.

I’m self-employed – what should I know?

• IVA – you can continue trading. We’ll help build a business cashflow and protect tools, stock and equipment.
• DRO – you may be ineligible if you have high-value business assets. Your intermediary will assess this and if you’re a Director for a Limited Company you’ll need court permission to proceed with your position.

Can I apply for credit?

• IVA – you need permission from your IP for new credit over £500.
• DRO – you must inform lenders of your DRO when applying for credit over £500.

Will my IVA or DRO be public?

Yes – both are listed on the Insolvency Register for the duration of the arrangement.

Need help deciding between an IVA or DRO?

We’re here to help you figure out which solution is right for you – with no pressure and no judgment. Our team of expert advisers will walk you through your options step-by-step. Call us free on 0800 316 1833, chat live at www.payplan.com or speak to us on WhatsApp.