At IVAPlan.co.uk we know how vulnerable our clients can feel from after declaring insolvency. What makes the process of sorting debt more difficult is selecting the right debt solution. Our team of helpful advisers are on hand to offer unbiased, honest advice on how to get your finances back on track. However, many of those seeking advice first try to familiarise themselves as much as possible by reading information online. Although lot of this information can be very useful a considerable amount can be biased, exaggerated or incorrect. This only makes the decision making process slower and more stressful. One of the most common mistakes our clients make is confusing an Individual Voluntary Agreement (IVA) with a Debt Management Plan (DMP), and while these two debt solutions are very different many online resources paint a picture of the two being similar. It is therefore imperative to know the differences between these two popular debt solutions before entering into either of them, and to help with this we have produced a short guide comparing the two potential solutions. Listed below are the various issues where an understanding of the differences between an IVA and a DMP is vital.
- Frozen charges
- Public information
- Formal agreement
- Information required
- Creditor control
- Creditor contact
- Time limit
- Lower limit
- Start up fees
- ‘Written off’ debt
From the moment an IVA term starts, all further charges and fees are frozen. This is not guaranteed with a DMP and creditors could, potentially, continue to add charges throughout the payment period.
DMPs can either be self-administered or used in partnership with a third party, who is willing to deal with your creditors. On the other hand, IVAs cannot be approved without a having a licensed Insolvency Practitioner.
When you begin an IVA your details are published in an online register which anyone can access. There is no register of this kind for a DMP.
A DMP is an informal agreement made between you and your creditors. An IVA, meanwhile, is a formal arrangement which involves you, an insolvency practitioner and you creditors. The formal arrangement must include a document detailing your payment plan. This must be agreed by creditors before an IVA can go ahead.
Before setting up an IVA a meeting must be arranged to go over every aspect of your financial situation. This includes every expenditure and earning as well as discussing in great detail who you become insolvent. With a DMP you only need to provide documents showing proof of income and proof of debt.
DMPs, overall, have more flexibility than IVAs. With an IVA you can increase your payments, but only an amount up to 15% – which must also be accepted by your creditors. If you wish to change how much you pay with a DMP, you can do so whenever necessary.
For an IVA to go ahead the creditors who are owed 75% of your debt must agree to the proposal. With a DMP no such creditor approval is required.
Although creditors have more influence over an IVA in the initial stages, once the IVA term begins they are legally forbidden from contacting you about anything related to the money you owe them. With a DMP creditors still have the right to contact you and the debt collection process can continue as normal. This might include home visits, letters or phone calls.
Generally, an IVA lasts no longer than 5 years. This can be extended by a year if your personal or financial circumstances change and if the extension is approved by your creditors. A DMP has no limit due to its flexibility with payments.
DMPs for the most part don’t have a lower debt limit. This can depend on your own financial circumstances and the debt provider. IVAs do have a lower debt limit of around £15,000.
With most IVAs you will have to pay some sort of start up fee. There may be more fees later on for the services of your insolvency practitioner or admin fees. There are no fees to pay with a DMP.
When you finish the payment period of an IVA your remaining debt is written off. On the other hand, since a DMP can last for an unlimited amount of time and has flexibility in how much you pay each month, your debt must be paid off in full in order for it to be concluded.