IVAs and DMPs are very different debt solutions. The advantages and disadvantages of IVAs are discussed here; and of DMPs are discussed here. Neither of them is “best” – it all depends on your current situation and how that might change in the future. Looking at the differences between them is the best way to decide which is right for you.
IVAs are individual arrangements. But most IVAs follow a standard pattern and that is what I am describing here.
UPDATE In June 2021, the eligibility requirements for a Debt Relief Order were relaxed so more people can have one. If you owe less than £30,000, you don’t own a house and you have little money each month for your debts, have a look at a DRO – if you qualify for one, it is ALWAYS better for you than an IVA.
Contents
DMPs are good temporary solutions – IVAs aren’t
You can easily stop a DMP whenever you want and resume the normal debt repayments.
You can end an IVA, but it’s not simple and can have significant downsides: the IVA marker will remain on your credit file (see below) and you will also have incurred the IVA set-up fees.
making a choice: If there is a good chance that your finances will improve soon and that afterwards you will be able to pay off your debts normally, you probably should choose a DMP.
think about: If you may be able to make affordability complaints and get refunds, start off with a DMP while you make complaints. Some good refunds may mean your DMP ends much sooner!
An IVA has a guaranteed end-point – a DMP hasn’t
IVA normally end after 5 years, with an extra year being added if you have equity in a house but can’t release it. At that point, your IVA completes and any remaining debts are written-off.
But some IVAs go on for much longer than planned – a few are still ongoing after nine years because people needed payments breaks or had to pay in extra money from overtime or bonuses.
A DMP goes on until you stop it or you have cleared all of the debts. This could take three or four years, but it could still not be finished after twenty! When you are choosing between an IVA and a DMP, you must work out how long your DMP is likely to last, this is a crucial piece of information.
making a choice: If your DMP is going to be very long, then an IVA instead could be a speedier and a more assured solution.
Many IVAs fail as their payments aren’t flexible – DMP payments are
In a DMP, repayments are flexible. They can be cut if your hours drop or you have additional expenses. The downside of doing this is that your DMP takes even longer to complete. A DMP that you initially thought might take an acceptable seven or eight years could stretch to a very long time.
In an IVA, if things go wrong there is some limited flexibility built-in. Payments can be decreased by 15% or there can be a payment break of nine months – see What happens if you can’t afford the IVA payments.
But large problems, especially in the first few years of an IVA, may mean your IVA fails, leaving you back with the debts. Even before the pandemic, the trend for IVA failures was going up fast, with 25% failing in their first 3 years. Statistics show that more than a third of IVAs started in 2016 and later are likely to fail.
This high failure rate may well get worse because of high inflation in 2022.
making a choice: If you have a very variable income, making a five-year commitment in an IVA would be unwise.
If you have a regular income, now and your job feels secure, are any of your expenses are likely to change significantly? Might you need a new car, or have another baby, or will your benefits stop when a child leaves school? What is going to happen to your energy bills and petrol costs?
An IVA has to be agreed by a majority of your creditors – DMPs don’t
An IVA has to be approved by 75% (by the value of their debt) of creditors who vote at the meeting. If you have a very large creditor, they have effectively a veto over the IVA. For example, a large creditor may say they will only accept a proposal if it is for six years not five. This isn’t common – your Insolvency Practitioner should know if your creditor list is likely to prove ‘difficult’ and will discuss it with you.
A DMP is proposed to creditors individually. Even if one of them refuses to ‘accept’ your offer, you can still go ahead and make the proposed reduced payments, but not every creditor may freeze interest. This is less of a problem now than it used to be – you can complain and take a catalogue or credit card or other lender to the Financial Ombudsman if they refuse to freeze interest in a DMP.
All interest is frozen in an IVA – this isn’t guaranteed in a DMP
In an IVA, all your unsecured creditors are bound by the IVA and cannot add interest, even if they voted against the IVA.
In a DMP, your creditors are asked to freeze interest and not add charges. Most do agree if they are presented with a reasonable Income and Expenditure sheet. You can challenge a refusal, although this isn’t guaranteed to work, the Financial Ombudsman has been upholding some customer complaints where a catalogue, credit card or loan firm hasn’t stopped adding interest.
making a choice: If other factors are pointing towards a DMP, you could start a DMP and 6 months later change to an IVA if, unusually, you have a lot of problems with creditors continuing to add interest or charges.
An IVA may seem more intrusive than a DMP
An IVA has to be set up by an Insolvency Practitioner, there is no “DIY” option. You will have to supply your Insolvency Practitioner with a lot of details and paperwork before your IVA is set up and at annual reviews. An IVA is also a matter of public information – your name will be on the Insolvency Register.
If you set up your own DMP (see this article about a CAB system that can help) you don’t have to discuss your affairs with anyone else, but you will still have to send your creditors an Income and Expenditure Sheet to persuade them to freeze interest. If you use a company to run a DMP for you (NB never use a commercial firm that charges you fees!) then you will have to talk through your budget with them at the start and at reviews, but it will be simpler than setting up an IVA.
making a choice: If you need the security of an IVA, these are the inevitable side effects. For most people, they won’t seem like a major factor for making their decision.
Safeguarding your house
In an IVA, your creditors cannot take legal action against you: they can’t get CCJs and then a charge over your house or make you bankrupt. For the duration of the IVA, your house is, therefore, safe. Assuming of course that you can pay the mortgage and any secured loans.
In the last year of an IVA, if you have significant equity you may have to remortgage or get a secured loan to release some money for your IVA. It is incredibly rare for someone to be offered a remortgage so you feel (and your IVA firm may tell you at the start) that this won’t happen. BUt some people are being asked to take out secured loans at horrifying rates of interest, see this story of one person being offered a 15 year secured loan at 19% interest.
In a DMP your creditors can try to get a charge over your house or make you bankrupt. This is very unusual for a consumer debt, especially at the start of a DMP, but it is a possibility you need to be aware of especially if you have significant equity and your DMP is likely to last for a long time. It is more likely to happen where you have given a guarantee or for business debts. If you are concerned about whether this is likely to be a problem for your DMP, it might be helpful to discuss it with StepChange.
making a choice: protecting a house with significant equity is one of the main reasons to prefer an IVA over bankruptcy. But many people worry more than they need to about the very small risk to their house in a DMP.
Effect on your credit record
An IVA marker is added to your credit record – this will make it hard or impossible to borrow money, which is likely anyway to be against the terms of your IVA. The marker will remain for 6 years or until your IVA is completed – many IVA takes much longer than 6 years as people have to take so many payment breaks which just extend the term of the IVA.
The IVA marker will remain even if you settle your IVA early or repay your debts in full.
The IVA marker is a major problem – it is seen as much the same as bankruptcy. It creates difficulty:
- if you have car finance (PCP or lease) ending during your IVA. See IVA and car finance for details.
- when you need a new private tenancy (unless you have a guarantor).
- when you need to remortgage during your IVA.
- after the IVA marker has gone, you are still normally asked in a mortgage application if you have ever been “bankrupt or in an IVA” or if you have ever been “insolvent”.
The effect of a DMP on your credit record is more complicated as there is no definite time at which creditors have to mark debts as defaulted.
If your DMP may be temporary, you don’t want them to default your debts at the start, but in a long DMP it’s better if debts have defaulted because then they fall off your file after six years – see this article for more details.
making a choice: The impact of an IVA is worse for your credit record than a DMP. This is a side effect of your chosen debt solution that it is good to be aware of, but it is less important than other factors such flexibility or the length of time until you are debt-free in deciding which is best for you.
Summary
IVAs are a formal legal contract. They have a fixed duration and all creditors are bound by them which is good, but they are not easily changed. It is essential that you are sure you can live on your allowed budget and that you think what may change over the next few years – do not sign up in a hurry to an IVA and later regret it.
DMPs are an informal debt solution. They can be short or long-term. Creditors are likely to freeze interest but cannot be forced to. They are flexible so you can change your payments. If you have a lot of debt, especially if you also have a house with equity, then you should probably look at formal debt solution such as an IVA to see if that would be a quicker and more secure approach to clearing your debt.
This is a really hard choice to make.
An IVA that fails is a disaster, but being stuck in a seemingly endless DMP isn’t a good idea either. You may feel that you need a crystal ball because of all the things that could change in the future! If neither feels right for you, look at the other possible choices such as a debt releief order if you are renting, bankruptcy, selling your house, getting a lodger etc
If you are feeling completely stuck, then you could start with a DMP and review it after 6 months, when it will be clearer how you cope on a restricted budget and whether your creditors have frozen interest.
Change from an IVA to a DRO?
Choosing between a DRO and IVA or DMP
A very hard choice – sell your house?
Ed says
I’m feeling stuck I want to repay everything but I’m always in my overdraft and my last card is close to the limit and I’ve rejected for a balance transfer. I my lose my job in the next year that looks likely. I need low payments now don’t mind how long for what is best for me? Are iva payments lower?
Sara (Debt Camel) says
IVA and DMP payments are usually about the same. But in your situation where you think your job is at risk you should NOT go for an IVA, because it may fail if you lose your job and can’t get another one paying as much. I suggest you talk to StepChange – they can set up a DMP now for you if one is suitable.
They also do IVAs, so if later the risk of losing your job decreases or you do lose it but get another one, you could switch over to an IVA when it is safe if a DMP will take too long.
S says
hi.. Not sure if this is the correct thread… I am in discussion with Payplan in regards to entering into an IVA ( after wasting 3 months dealing with Creditfix .. who were not very helpful)..
One of our debts is a Child TAx Credit Overpayment from 2013/2014.. back in 2014, HMRC sold this to a debt company, and after i showed them our income and expenditure and our DMP with Stepchange ( now ceased), they passed the debt back to HMRC with the commentary of no possible means of payment on this debt. We heard nothing in 2015, 2016, 2017, but we received notfication that the debt is still valid in 2018.
i have since read “Following a House of Commons Public Accounts Committee report, HMRC has decided to no longer pursue collection of tax credit overpayments in the following circumstances:
“Overpayments made between 2003/4 and 2008/9 for which HMRC have either received no payment in the past 12 months, or where the individuals cannot be traced.”
Our understanding is that the debts will not be written off, just not pursued.
does this only apply to the period mentioned, or extended to other timeframes..
I am trying to avoid an IVA but need to ensure on certain criteria before finalising this decision. If the HMRC debt will “not be pursued” as mentioned above then i will possibly go with the DMP
thanks
Sara (Debt Camel) says
I would be surprised if a tax credit debt as recent as yours will not be pursued at some point.
Is this tax credits debt large? how large are your other debts? how old are they, since the accounts were opened, not since you defaulted on them? Have you looked at whether you could reclaim an PPI? are you renting or buying?
S says
hi
who would be the best company to discuss my options either DMP or IVA or does it not really matter
Sara (Debt Camel) says
It does matter a LOT if you choose an IVA or a DMP. See the above article for points to think about.
I suggest you talk to National Debtline about your options as they can advise on which would be most suitable for you. See https://www.nationaldebtline.org/ and phone them on 0808 808 4000
S says
Hi Sara
i have around 19K of debt which includes Credit cards, payday loans, and a HMRC Child Tax credit over payment of £9k.
i am discussing with Creditfix for the best solution, and they are suggesting an IVA over Bankruptcy.
is there a for and against for either?
i live in rented accomodation with no assets.
regards
Sara (Debt Camel) says
Can I ask a few questions first?
How much do Creditfix say you are likely to pay a month in an IVA, have they said?
Are you working?
Have you used payday loans a lot?
S says
Hi
Creditfix have reckoned £120 a year for 4 years, then £300 for 12 months when my car finance ends
Yes I am working full time
Sara (Debt Camel) says
Your car, is this on HP so you will own it at the end of 4 years? Or is it on PCP or leasing where you have to hand it back unless you can make a large payment?
S says
The car is on HP so I will own it after 4years
Any advice?
Sara (Debt Camel) says
car finance makes both IVAs and bankruptcy complicated…
You need to look at your HP paperwork and see if there is a clause in the small print that says that the agreement may be terminated in the event of your Insolvency. See https://debtcamel.co.uk/car-finance-iva/ and as that says, if there is this clause, ask on the forums at Iva.co.uk whether your lender does repossess cars when someone starts an IVA. This is an area where Creditfix may not have warned you there could be a problem with an IVA.
Is your car essential?
How large are your debts and how much trouble are you in at the moment? Also have you already tried to reclaim any PPI on your debts?
S says
Hi
I could get a company car with my job so that would alleviate that one
My wife needs a car ( which is also on finance) for schooling etc
I will check the contract for this
I have tried the claim for payday loans but quick quid declined and Wong’s have taken 5 months thus far to acknowledge
Sara (Debt Camel) says
So you have two cars? Is your wife’s car finance in your name? When does this one end?
Wonga – send your complaint to the ombudsman immediately and say you have had no response. They should have replied within 8 weeks.
Sara (Debt Camel) says
If you are going to switch to a company car, this needs to be done before either an IVA or bankruptcy. Doing this will mean your take home pay will reduce – you want this lower amount to be the basis for determining your IVA payments – and you will also want the HP debt from handing back the car to be included in your IVA.
Laura says
Hi there, I have about 13k debt no assets. Payplan are advising an iva. I’m self employed but only recently started the business. Obv the debt would be gone quicker with an iva but I don’t know what to do
Sara (Debt Camel) says
I am always dubious about someone starting an IVA with a very early stage business, because your income could be quite erratic. Do you feel comfortable with the IVA monthly payment Payplan is suggesting? I would suggest having a talk to Business Debtline https://www.businessdebtline.org/ and see what they say about either a DMP or bankruptcy as alternatives.
Richard says
Hi
I currently have approx. 60k in debts I have a mortgage with about 50k equity we are really struggling to pay our debts and have tried to remortgage but our debt owed is stopping us. we currently have no arrears on any debts but getting into more debt to keep up repayments. I have consulted an IVA company who say my repayments on our debt would be £300. My wife is concerned about the equity in the house after 4 years do we have to remortgage or sell our home. getting a remortgage would be difficult I would presume any advice would be much appreciated
Sara (Debt Camel) says
“My wife is concerned about the equity in the house after 4 years do we have to remortgage or sell our home. getting a remortgage would be difficult I would presume” good question to ask! In the 5th year you are asked to remortgage. There is a calculator here https://debtcamel.co.uk/iva-equity-release/ that shows how much you may be asked to release – have a play and see what happens if house prices change. You are right that getting a remortgage is very hard, in fact usually impossible, but some IVA firms will say that you have to release the money by taking a secured loan from a bad credit lender – these can be VERY expensive – I have seen people being quoted 19% APR for a 10 year loan.
Are all the debts yours? or half your wife’s?
How stable is your financial situation – may you need to move? have a child? is your job at risk? will you have a child needing support at uni? Is your mortgage repayment? do you have a car on finance?
J says
Hi,
We are in the process of talking to Payplan with regard to our debt, we was thinking along the lines of a DMP but they recommend a IVA, is that because they earn money from one compared to a DMP?
They have also told us that if we can’t release any equity on out property that they would never ask us to take a secured or unsecured loan out.
Has anyone else dealt with this company and had any good or bad issues with them?
So confused by everything and not sure which was to turn with it all.
Thanks
Sara (Debt Camel) says
Payplan will make more money from an IVA, but it may still be the best option for you…
“if we can’t release any equity on out property that they would never ask us to take a secured or unsecured loan out.” That doesn’t really help you – the problem is if you are offered a secured loan at a very high rate of interest…
If you don’t mind answering some questions:
– how much do you owe? your partner? how much of those totals are joint debts?
– do you both own the house? is there a lot of equity in it? is your mortgage a repayment mortgage? when does the fixed rate end?
– what are payplan suggesting as a monthly IVA payment?
– how old are you both? do you expect any changes to your family or jobs over the next 6 or 7 years?
J says
Hi,
We owe around £66,000, mix of individual and joint.
Our house is jointly owned with a repayment mortgage, fixed rate ends in two and a half years.
Yes there would be equity in our house, a rough valuation is around £350,000 and our outstanding mortgage is £115,000 at present.
Payplan are suggesting a monthly payment of £640.66.
I’m 54 and my husband is 57.
There is a possibility that one of my sons will be coming home from university this year at the end of his course but it would only be for a temporary period. We don’t expect any other changes.
I don’t know if it makes any difference but we do have a disabled son who is 28 and lives with us full time.
This is what Payplan have said in there email regarding releasing equity on the house and what happens if that can’t be done.
– As you are a homeowner, if you have any equity, you may need to release some of it to pay towards your debts. If you are accepted for a re-mortgage, this may be at a higher interest rate than you are currently paying. If you cannot re-mortgage, you will need to continue making regular payments into your IVA for a further 12 months.
Thanks
Sara (Debt Camel) says
An IVA probably is a reasonable option for you to consider.
How affordable do you think the £640 a month will be? For such a long period? Have Payplan taken into account any benefits your son gets when calculating this? (I hope not!)
Are both your jobs stable?
£640 a month leaves some room for adjustment if your mortgage cost goes up in 2 and a half years.
The “secured loan” issue isn’t covered by in that paragraph. Can you ask Payplan to confirm you would not be asked to take out a secured loan at a very high rate of interest?
J says
Hi,
I emailed Payplan and asked if we would have to get a secured loan and this is the reply I got.
Thanks for your email. Under no circumstances would we involve any third parties and you would not be expected to take out a secured loan against your home. If this is something that is particularly concerning you, you could request to have it written into your IVA proposal that you would agree to 6 years of payments initially rather than attempt to remortgage.
Thanks
Sara (Debt Camel) says
That may be a sensible solution for you. You are clearly going to be over the 15% equity mark so you will definitely have to pay a 6th year and getting this sorted now prevent it being a worry.
The only downside I can think of is that is removes a bit of flexibility – if say one of you was having health problems by the end of the 5th year. But in that case you could ask for your creditors to agree to end your IVA early.
J says
I think there’s still a lot for us to understand about IVAs before we make a decision. My husband doesn’t really like the sound of going down the route of an IVA and would prefer a DMP, we realise this will then take longer to pay off but we feel we would be able to cope with the monthly repayments if we could get the interest and charges frozen.
Is this something that could be done?
Thanks
Sara (Debt Camel) says
Yes interest is normally frozen in a DMP. And you can complain if it isn’t – see https://debtcamel.co.uk/creditor-wont-freeze-interest/.
But if you are paying £640 a month to a DMP than it will take 8 or 9 years. That is quite a lot longer than 6 years in an IVA. Any health or employment problems could mean the debt isn’t cleared by the time you are retired.
How does the £640 compare to what you are paying at the moment? What are the chances of you increasing your income? getting a lodger? Inheriting any money? What are your pensions like? A DMP for a few years then a tax free lump sum from a pension could be used to make a final settlement offers on some debts?
Alex says
I’ve been in a DMP for 2 years and I’m thinking of changing to an IVA as it will be several years shorter.
But I’m a school governor. Some things I found on the internet say I can others I. can’t continue if I have an IVA and there is a gov.uk page that says you can’t if you have an arrangement with creditors so now I’m worried that I should have told someone about my DMP? Can you help?
Sara (Debt Camel) says
The easy bit first: there are no problems about being a school governor if you are in a DMP. A DMP is an “informal” arrangement with your creditors. What you have seen (I wonder if it is the rules about disqualification from being a charity trustee here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/731084/010818_Disqualification_Reasons_Table_v2.pdf ?) will have been referring to a formal arrangement with your creditors in an IVA.
From here it gets trickier. There are different sorts of schools – maintained schools where the oversight is from the local authority, academies where the oversight is from the DfE and governors are both company directors and charity trustees, and private schools, which are often charities but I am not sure they have to be. So the rules for different types of schools may be different. And even where the basic rules are the same, I am not sure there is any reason why a particular school couldn’t decide to have a more restrictive policy if it wanted. You can certainly find examples on the web of schools who ask potential governors to complete a form which includes them saying they are not bankrupt or in an IVA.
I suggest you should make some enquiries about the policy of the school you are at. The Clerk to the Governors or the Chair should treat this in confidence.
Cheri says
HI,
I have about £14K worth of debt, I live with my parents so no house to worry about.
All the debt is loans and credit cards.
I’m currently paying about £600 per month.
Creditfix have recommended an IVA over 5 years but I’m not sure what would be best for me.
Is a DMP going to be better long term?
I’m worried about an IVA effecting me purchasing a property in the future once it has finalised.
I can probably afford no more than £300 per month on these debts.
Any advice would be greatly appreciated.
Thank You
Sara (Debt Camel) says
Creditfix will make about £3500 from setting up an IVA for you – not exactly impartial. £250 a month would see your debts repaid in full in less than 5 years in a DMP. And it is much more flexible if your situation changes – undertaking to carry on living with your parents for 5 years is a long while!
I suggest you talk to national debtline on 0808 808 4000 about your current situation and how it may change.
Lauren says
Hi
I have about £24K worth of debt, I live in a private rental, so no house to worry about.
All the debt is loans and credit cards.
I’m currently paying over £600 per month.
National debt advice sent my details to astute finance and they have recommended an IVA over 5 years but I’m not sure what would be best for me. This is based at £306 per month, with £5k of the debt written off for me.
Is a DMP going to be better long term? I am worried as to if going for insolvency (IVA), is it going to effect, work, rental property, phone contract, car insurance.. is it too close to bankruptcy?? As I know most companies only ask if you have CCJs or been declared bankrupt before. Not if you have an IVA?
I’m worried about an IVA effecting me purchasing a property in the future once it has been finalised and paid off after 5 years total and off the credit file after 6 years total..
Any advice would be greatly appreciated.
Thank You!!
Sara (Debt Camel) says
First can I be clear that the “National debt Advice” that you have spoken to is NOTHING to do with the well-respected National Debtline. NDA is a lead generator – they will get c £800-1000 from selling your details to an IVA firm that will then make several thousand pounds in fees by setting up an IVA.
That doesn’t mean an IVA is wrong for you. It just means you haven’t had impartial debt advice!
How confident do you feel that £306 a month is affordable? how stable is your income? Are you likely to have to move in the next 5 years, or get another car on finance?
Miss A says
Hi,
I am desperate for advice. I owe approximately 19k in debt to credit cards, loans, childcare, HMRC.
I spoke to Stepchange charity and they said I can afford 170 PCM to pay my debt off and I can clear that with an IVA. My situation is constantly changing and I’m concerned if going into an IVA is the right thing for me. I am a single parent of two kids, one of which is a baby 4 months and their needs are forever changing. I feel as though stepchange hasn’t considered the constant costs of nappies and cloths with a growing child and future cost of childcare when I finish maternity leave and return to work. Also in a few months my maternity pay would change and as it’s going to decrease I’m scared to commit to anything. I really want to get rid of my debts. DMP isn’t suitable for me either. My brother was like get a insolvency Practitioner yourself and cut out the middle man and apply for an IVA. I’m concerned that going into an IVA will affect my future even when it’s finished or so I’ve been told. I’ve been in default since 2016. I really don’t know how to sort my situation out. I can’t go bankrupt I have HP car which I need for my job. Is there any other way?
Sara (Debt Camel) says
StepChange is not a middleman, they have an in house IP and set up IVAs themselves.
If yiu think your situation is going to get worse in a few months, I strongly suggest you do not apply for an IVA now but wait and review it it after you are back at work and are aware what all your income, benefits and expenses are.
Go for a DMP for the next few months. DMPs are good temporary options while you wait and see how things will go.
IVAs are not flexible solutions. A lot of them fail when someone can’t maintain the payments. Unless you are a very high earner I would be surprised if a single mum of 2 including a small baby can afford £170 a month in an IVA for the next 5 years.
You can sometimes keep an HP car in bankruptcy and you can sometimes lose it in an IVA, see https://debtcamel.co.uk/car-finance-iva/
Imran says
Hi,
I am currently struggling with huge debt approx £47000 and am looking for possible options on how to deal with them. I found this site searching for various pieces of information and it has been very helpful to read the posts and the suggestions. My current situation is as follows:
– Full time employed with salary of £73k; monthly net approx £4k; Live in privately rented home with my wife and 2 kids. I am so far up to date with my payments and have not missed any. My monthly outgoing in terms of loan installments and credit card payments is approx £1500.
– However since major chunk of salary goes in the paying the installments and credit card bills, I am not left with enough to go through the month, hence new credit or balance transfers every now and then.
I have spoken with PayPlan, StepChange, National Debtline and Citizen Advice. They have all told me about DMP (Step Change suggested to go with this option), IVA (PayPlan recommended this option) and Bankruptcy.
I can make payments of £500 – £600 per month towards the lenders. If I go with DMP it takes me about 7 – 8 years to clear the debt. If I go with IVA it takes me about 5 years to clear the debt. I am not sure about bankruptcy.
I am confused on which option should I take. Should I opt for IVA or DMP?
I am renting and am also concerned which option would make it worse for me to find a rented property in the future.
Please advice.
Thank you.
Sara (Debt Camel) says
So you have been given a lot of advice on the three options. It is a genuinely hard decision. I will just add a few points to think about:
1) do you think your situation (income and non-debt expenses) is likely to get better or worse? If you feel it may get better, then a DMP will take less time than expected which may tip the scales in favour of it. If you think it will get worse, a DMP will take longer and choosing an IVA or bankruptcy is probably a better idea.
2) it doesn’t sound as though you have any assets to protect. In that case bankruptcy is usually better than an IVA. It is over sooner – only 3 years of payments not 5. And it is more flexible if your situation gets worse. Bankruptcy can’t fail, an IVA can, in fact at the moment more than a quarter of IVAs are failing.
3) both an IVA and bankruptcy have the same bad effect on your credit record and will make it MUCH harder to get a new tenancy. A DMP is not seen as so serious by many landlords.
4) do you have a car? on finance? you need to take that into consideration.
In general if you can’t decide, one good way forward is to set up a DMP and see how it goes for 6 months. At the end of that you can think again – is your position getting better or worse? Is interest frozen on all your debts? Waiting a few more months and borrowing more to make the payments is NOT a good option if you can’t decide.
Jane says
Hi,
I currently have 66k worth of debt ( mixture of credit cards and unsecured loans). I am mortified that it has got to this point. I jointly own a house with my husband (£112k outstanding on mortgage, worth approx £350k). My current fixed rate mortgage deal ends Jan 23. I earn £51k and my job is stable. Most of the debt is due to over budget house renovation costs. I have always paid my bills and never defaulted, all of my accounts are up to date but the monthly repayments are not sustainable and a lot of the original deals are coming to an end and the interest is creeping up and up.
Payplan have assessed my situation and have advised that I should either have a DMP or IVA. They have worked out that I can afford £532 per month to pay my creditors. This is within my means and I am happy to pay this amount as my job is secure. I am torn between the two options. I do not want to risk my home in any way but equally I need to not want this hanging over me for years and years. I do not have any cars etc on finance.
Can you give any advice please?
Sara (Debt Camel) says
Have you missed payments to any of the debts or is your credit rating currently OK? What about your husband, does he also have debts? What does he earn?
Jane says
No missed payments and credit rating is fair/good. My husband had debts of approx £45k. He earns approx £23k. I would be looking to sort out my debt and not a joint thing.
Sara (Debt Camel) says
your husband has debts of twice as much as his salary? Can he afford the debt repayments? what is his credit rating like?
With a joint property, i think you need to be looking at a joint solution to both your debts.
(If you don’t want to because you are unsure if you will be remaining together you should avoid an IVA like the plague. as if you split up and the IVA fails the house may have to be sold and all the debts repaid in full plus the high IVA fees.)
The problem here is your joint mortgage. With that level of debt you are likely to find it very hard to get a new fix with any other lender in 2 years time.
How large are your current payments to your debts? Have you looked at try to refinace the debt to 0% deals or low interest loans?
Jane says
We are in a fixed deal until 2023 and will probably do another deal with the same mortgage provider as this has been the best option for us over the last 7 years (quite competitive).
My husbands debts are manageable with his income. He has 2 loans (both have about 3 yrs left to run) My wage is the main wage and covers everything else but like I say it does not leave us much flex. We currently pay over £2k a month on repayments (this would reduce down to about £1300 pm (if I were to go on to the DMP). I can’t get another cc or loan without bringing the debt down more.
My gut is telling me to go with a DMP first and review every year. I am daunted by the IVA and the equity release thing at the end.
Sara (Debt Camel) says
An IVA will also destroy your credit record more.
But an IVA would be over in 6 years. And if you went to StepChange, I would feel more comfortable about the equity release clause – I don’t like the way Payplan interpret theirs. If you both have stable jobs then an IVA is not a poor decision.
A DMP will last much longer.
One thing you could do is start a DMP and see how it goes for 6 or 12 months. You could always plan to increase your DMP payments in 3 years when your husband’s loans are cleared – or at that point save up his loan payments to try to make lower settlement offers to your debts. That could speed a DMP up a lot.
So although a DMP looks a lot longer at the moment, it is more flexible and, if you are determined, you could use this to decrease the time a DMP takes.
Jane says
Thank you. I have decided that DMP is the best in my current situation. You mentioned about PayPlan’s interpretations, would you recommend StepChange over PayPlan for the DMP too?
Sara (Debt Camel) says
No, they are the same.
Do review your DMP decision. After 6 months check that all creditors have frozen interest. After 12 months think how easy or hard it is and reconsider an IVA. When your husband’s loans are clear, get a new plan.
And do include all your accounts, including overdrafts, in the DMP.
Lynn says
Hello! I am going to take an iva with Abbots Insolvency company based in Manchester. I have never heard of them before that’s why’ll worries if they are ok to have a financial commitment with for 5 years. Can you recommend them? Thank you
Sara (Debt Camel) says
Can I ask if you are renting or have a mortgage? This changes the sort of things you need to think about.
Sara (Debt Camel) says
So to explain what you need to think about.
The IVA firm you are talking about has this as its “front end” https://nationaldebtadvice.uk/.
You may have thought the fact it has the Money Advice Service at the top means it is approved by them? It isn’t. It is not an FCA authorised debt adviser at all…
Also it is one of the firms that advertises with google keywords so that it comes up when someone tries to find the well-respected debt charity National Debtline. Although not illegal, I think this is disgraceful and I don’t see why a reputable firm would want people to mistake it for a national debt charity.
You may have been given good advice by them – but as you aren’t an expert, there is no easy way to tell. It is quite easy to describe other debt solutions in a way that makes them sound off-putting. And to not point out the problems with IVAs…
Did they tell you that at the beginning of 2020 over 20% of IVAs started in 2013 are still ongoing and over 20% failed? A “5 year IVA” can very easily get extended a lot when people have problems.
Did they tell you that at the beginning of 2020, over 25% of the IVA that started in 2016 have already failed? So the failure rate for IVAs is getting worse?
Did they tell you they would make more than £3000 in fees from your IVA?
So back to my questions.
If you are renting, there may well be a better debt solution for you than an IVA. IVAs are meant for people with large assets to protect. At the moment they are being mis-sold to a lot of people who should have a different debt solution which is why more and more are failing.
If you have a house, then IVA may be a good option for you if you have a stable income. But here you need to go to an IVA firm who you will trust not to make you try to get an expensive secured loan in the last year of your IVA to release equity.
StepChange will not try to force you into taking an expensive secured loan. There are very few complaints about StepChange IVAs.
They can also do DMPs, DROs and can talk to you about bankruptcy. They are not a one trick pony firm that only does IVAs.
So I suggest you talk to StepChange: https://www.stepchange.org/ to see if an IVA is a good idea for you, what your other options are, and for a well-run IVA if you do need one.
David says
Hi,
I’m currently on a DMP with CAP. am I better changing to an IVA? I owe around £26k and have finance on a car of £1100. I have a joint mortgage with my brother and equity in the house is around £24k
Sara (Debt Camel) says
How much are you paying to the DMP?
How secure is your job? Your brother’s job?
What is the chance of either of you wanting/needing to move out in the next 6 years?
finance on a car of £1100 is that how much you have left to pay? how much are you paying a month? at the end, do you own the car?
Rachel says
Hi there,
I have an IVA which I’ve been paying for 5 months now. I’ve realised it’s not the best option for me anymore, due to not being able to do any overtime (I have more time on my hands and would like to pick up overtime which I currently can’t as it would all go to the IVA).
Can I switch from a IVA to a DMP?
Sara (Debt Camel) says
That is normally not a sensible switch.
It’s very easy to change from a DMP to an IVA if things get worse.
But changing from an IVA to a DMP if things get better hardly ever makes sense as the IVA insolvency marker would still be on your credit record for 6 years :(
Sorry, it is a shame you did not look at this sort of thing before signing up to the IVA.
You will get to keep some of the overtime pay in an IVA, but for many people this just isnt worth doing. A lot of extra work for little gain.
Patrick says
Hi,
For years I worked full time and running small business on sole trader basis. I could afford a bit of luxury. Once self employment stopped I needed to rely on my salary currently 38k. I have shared ownership mordgage and my debts are about 50k. Contacted freeman Jones and they advised iva. After reading this forum I’m thinking would it be better for me go DMP as it gives me more flexibility, for instance pay more then agreed when I can. Also have pcp for my car. I understand once it finishes all money goes to iva and I have no car to go to work??? The company assured me they won’t ask for secured loan on 5th year if I can’t remoegage. I don’t really know what to pick
Pat
Sara (Debt Camel) says
What have FJ quoted for a monthly payment? This is the starting point for you to decide how realistic the IVA is. And a DMP is.
How convinced are you that this will be affordable at the moment? If energy bills jump in April?
When the finance finishes, you will normally be allowed to take out another contract costing the same, but you need FJ to confirm this in writing before you agree to an IVA. The problem then is that the only lenders who will lend to you will be the likes of Moneybarn with HP at 49% APR – so you will be paying a lot of money for an old and not great car. When does your finance end?
How much equity do you have at the moment? All yours or do you have a partner?
You need them to put “we won’t ask you to take a secured loan” in writing… or just go straight away at the start for the option of making IVA payments for 6 years, not 5.
Patrick says
I’m single and it’s all in my name. I bought a house, 50% of it, for 112.5 k. The full price was 225k. Current value is about 260k, but its only by Zupla.
Pcp finishes in 3 years, but FJ says they’ll let me have another cpc for car but not more then I pay now. Honestly I took 20k car as was quite well off two years ago, earning about 4.5 k per month after tax.
So you are saying iva could be set for 6 years straight away without being asked to remortgage on 5th year???
FJ suggested about 150gbp/month towards IVA as some expenses such children maitannance can’t be reduced as its court order abroad, not in UK. Also I don’t mind paying for kids, I look at it as my duty, no question asked.
My friend went thru IVA few years ago and he says that was the greatest decision he had ever made.
I’m expecting to have pay rise and be on 41k from March. I could try to get bit better paid job in industry for about 45k but it’s pointless as all will go to IP.
Already canceled unnecessary subscriptions like apple music, gym membership or netflix. I use pay as u go phone, canceled 1 life insurance (had 2) but that’s it. I can only eat less.
I’m on fixed term with BG for another year so I am not worried about bills yet.
FJ doesn’t do DMP but I can stop working with them and approach someone else.
Another concern is I need emergency founds, just in case and on IVA I can’t have them.
Thanks
Pat
Sara (Debt Camel) says
FJ says they’ll let me have another cpc for car but not more then I pay now.
yes – but the problem is with an IVA on your credit record no one is going to give you a PCP deal. You will be looking at a very expensive interest HP deal.
So you are saying iva could be set for 6 years straight away without being asked to remortgage on 5th year???
yes it can. See “option 2” in the equity release section in here https://debtcamel.co.uk/2021-iva-protocol/. If FJ say you won’t qualify for that, then you need them to put in writing to you that they would not ask you to take a secured loan if it is not possible to get a remortgage.
FJ are part of the same group as Gregory Pennington, who do provide DMPs. But they charge a monthly fee for DMPs, so you would be better off going to StepChange who do not charge a fee.
£150 a month would be £10,800 over 6 years. What do you think your monthly after tax pay increase might be in March? You will have to earn a lot more to be able to clear the debts in a DMP within 6 years… that is the plus point of an IVA. In an IVA not all of a pay rise goes to the IVA – but 50% of it can make people feel it isn’t worth bothering to work long hours for.
Have you actually defaulted on your debts?
Patrick says
Just spoke to them and she said to set iva for 6 years straight away I need to be over 60 years of age.
I haven’t missed any payment yet.
Pat
Patrick says
And I’ll have no secure loan requirement in writing.
Sara (Debt Camel) says
I am sorry does this mean they WILL put this in writing?
Patrick says
Sorry my bad English..
It will be put in writing, that I will not be expected to take out secured loan. If remortgage fails.
I should have paperwork ready by Monday and we will see.
Pat
Sara (Debt Camel) says
ha! Over 60 – that is nonsense.
Patrick says
Hi,
Spoke to FJ and made them aware Id done my homework on 2021 protocol. They confirmed that for now per their calculation I’m option 1 client – 5 years no remortgage needed.
Many thanks
Pat
Sara (Debt Camel) says
ok! There is an argument for that as it is can be very hard for people with shared ownership to get a secured loan. Interesting to see that when pushed by someone that has done their homework, they back down.
This makes quite a big difference to your IVA or DMP decision – a 5 year IVA compared to a DMP of very uncertain length. Now I would say your only real issue is your car – and that will be a problem even in a DMP, though that is easier without insolvency on your credit record.
Patrick says
Hi
Sara (Debt Camel) says
January 6, 2022 at 8:04 pm
ha! That is nonsense.
Just spoke to FJ making them aware I know the 2021 protocol. They confirmed that per current calculation I’m option 1 client.
For now it’s looking good. I should get my paperwork ready by Monday and I can confirm is that in writing.
Many thanks
Pat