Your IVA may have been sensible when it was started, but a change in circumstances (pay drop? new baby? separation?) may now be making it hard to afford the payments. Or perhaps a DRO would always have been better – quicker, cheaper, less risky – than an IVA for you but no-one explained this to you at the start.
In either of these situations, it’s good to look if changing to a DRO now would make sense.
Do you qualify for a DRO?
Unlike the other main debt solutions (debt management, bankruptcy or an IVA) there are some very specific checks that you have to pass to qualify for a DRO. The main ones are:
- debts have to be less than £20,000 in total;
- you can’t own a property, even if it has negative equity;
- a car has to worth less than £1,000; and
- you have little spare income (under £50) each month after all your expenses.
The last point is the hardest for you to assess. Your IVA firm may have said you can afford to pay £75 a month to the IVA – that sounds as though it is more than the £50 maximum allowed for a DRO. But the DRO calculations are different, so you could still qualify.
The best thing to do is to talk to an adviser who can look in detail and say if you can have a DRO. If you would like to do this on the phone, call National Debtline, or to do this in person, go to your local Citizens Advice.
The answer may be that you don’t qualify for a DRO, but you have other options – the debt adviser will explain what these area what your other options are. Then talk to your IVA firm about why you are finding it hard to manage and what they think you should do.
Is switching to a DRO a good idea?
If you would qualify for a DRO, you need to think about whether it is a good idea to end your IVA and start a DRO.
This mainly depends to how far you are through the five year IVA. If you are early in your IVA, changing to a DRO usually makes excellent sense. The DRO will be all over in a year. The only downside is that the DRO will be on your credit record for six years, but that’s pretty minor. If you are having problems in the first half of your IVA you may never get to the end of it, so taking action now is a good idea.
If you are in the second half of your IVA, then a DRO could still be sensible but look at other options first. Two alternatives to talk to your IVA firm about are:
- if your payments could be reduced to an affordable level. Your IVA firm will be able to reduce them by 15%. If a larger cut is needed, your creditors would be asked to approve this; or
- if your IVA could be ended on a “funds paid to date” basis. This would mean you don’t have to pay any more. This will depend on your situation but it’s more likely to be accepted later in your IVA. In your last year this should definitely be tried first, rather than failing the IVA and starting a DRO.
Tell your IVA firm that you have looked into a DRO and you would qualify for one. You should be wary of your IVA firm proposing that it will reduce payments if you agree to pay for a longer period, or suggesting a reduction in monthly payments which still doesn’t feel affordable. Sometimes a payment break of 6 months can work well, but is it likely your situation will have improved at the end of it? The longer your IVA will continue for, the more attractive the idea of stopping it and getting a DRO is.
How do you change to a DRO?
There isn’t a simple way to switch over. Your IVA needs to be terminated first, so you have to stop paying. Tell your IVA firm what you are doing and that you want the IVA to fail as soon as possible.
You don’t need to worry that you will get hassled by your creditors when you stop paying the IVA firm. They can’t do this until the IVA has terminated, and from that point it will be quick to apply for a DRO – go back to the adviser you spoke to earlier about this.
Not an easy decision
When you started the IVA it probably felt like the answer to your debt problems. But if you don’t think you can get to the end of your IVA, it’s better to face up to this, not try to postpone the decision.