What is a Debt Relief Order and how does it work?
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You can't just change from an IVA to a debt management plan on an impulse - it has to be clear that it's the best solution for your situation. A qualified Insolvency Practitioner will help you to decide what you should do.
It is possible to switch from an IVA (Individual Voluntary Arrangement) to a debt management plan - but there has to be a good reason for it. You can't just switch on a whim. Your Insolvency Practitioner and your lenders would have to agree that it's the best solution for your needs.
If you're not sure which debt solution could help you the most, use our debt solution finder below:
Why would I want to switch from an IVA to a debt management plan?
You'd typically want to switch from an IVA to a debt management plan if your disposable income had increased and you were able to repay more of your debts. You should only be considering a debt management plan over an IVA if you can now afford to repay what you owe in full.
Bear in mind that if you switched from an IVA to a debt management plan, you'd be moving from a legally binding solution to an informal one. This means that your lenders don't have to freeze interest and charges - and they aren't legally obliged to let the debt management plan continue. It's likely that they will agree to freeze interest and charges, though, and it's very unlikely that they'd stop the debt management plan as long as you kept up with your debt management payments.
In a debt management plan, homeowners don't have to release any equity from their home - as you would have to do in an IVA. Homeowners may therefore find it desirable to switch to a debt management plan if possible.
What are the alternatives?
If your disposable income has increased, the alternative to switching to a debt management plan is to simply increase your payments into your IVA. This will mean you can repay more of what you owe.
Your Insolvency Practitioner will look over your budget with you - like they did at the beginning of your IVA. They'll calculate how much you can afford to pay by subtracting the amount you spend each month on your essentials from your total monthly earnings, and see how much is left over. If this amount of disposable income isn't quite enough to let you repay what you owe in full over a longer period of time, your IVA payments will be increased.
If your disposable income increases so much that you'd be able to resume your previous debt payments - i.e. the payments you were expected to make before you started your IVA - you may be able to leave debt solutions behind altogether.
What happens if my disposable income decreases?
If you come into financial hardship during your IVA - for example if you have to meet unexpected costs, or you lose your job - you may need to consider a different debt solution, like bankruptcy.
It's important to talk to your Insolvency Practitioner as soon as you can if your situation changes. They will go over your situation with you and suggest your best course of action.
by Shelley BowersBack to blog home