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.
NB IVAs are individual arrangements. In this article, I am assuming that your IVA would follow a typical pattern.
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.
have you considered: If you haven’t reclaimed PPI, start off with a DMP whilst you do this as this could mean you don’t need an IVA at all! Many people have been astonished by the amount of PPI compensation they get, as they had no idea they had paid that much.
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. - 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 long, then an IVA instead could be a speedier and a more assured solution. But if your DMP would be short, opting for the ‘fixed length’ of an IVA is not a plus point.
IVA monthly payments aren’t flexible – DMP payments are
- 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 breaks of nine months – see What happens if you can’t afford the IVA payments.
But large problems, especially in the first few years, can be fatal. About about 1 in 4 IVAs fail because of problems. - IVAs for the self-employed work rather differently and can be designed to cope with seasonal variations in income.
- In a DMP, repayments can be adjusted if your hours are cut or you have additional expenses. The downside of doing this is however that the DMP then takes even longer to complete. A DMP that you initially calculate as being eight years may seem acceptable to you, but if things go wrong, then that could stretch to a very long time.
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, consider if any of your expenses are likely to change significantly, from mortgage rate rises or needing a replacement car to having a baby or benefits stopping when a child leaves school.
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 the creditor may not freeze interest or could still go to court for a CCJ. If the difficult creditor is small, this probably doesn’t matter.
making a choice: If an IP tells you an IVA is unlikely to be approved, you may well have problems with a long-term DMP and you may need to look at other debt solutions such as bankruptcy or selling your house if it has equity.
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 you can challenge a refusal, but this isn’t guaranteed to work.
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.
- At the end 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. In 2017, it is incredibly rare for someone to be offered a remortgage. The secured loan clause is new and it is not clear how often it will be used, but this story of one person being offered a 15 year secured loan at 19% interest is pretty horrifying.
- 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 with commercial creditors (eg where you have given a personal guarantee over a business loan) or tax 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. 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. It will also make it very difficult to remortgage at a good rate, which may cause problems if you have a fixed rate ending in the next year or two. The marker will be removed after your IVA ends, or after six years, whichever is longer. Afterwards, it will still be harder to get a mortgage or remortgage.
- 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, but it is limited to six years. 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 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.
How PPI can get you out of debt!
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.