Is a DMP the same as an IVA?

Posted 12 April 2019

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When it comes to choosing a debt solution, how do you know what’s right for you?

It’s important to get expert advice to help you identify which debt solution is suitable for you. But we can help give you an idea of your options. Today we’re looking at Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs).

What is a DMP?

A DMP is what’s known as an informal agreement. It’s not legally binding - it’s simply an arrangement between you and your lenders. You agree to make regular payments, at a level you can afford, until the debt is repaid in full. Your lenders agree not to take action against you to recover the debt in the meantime.

You can make this arrangement with your lenders yourself. However, most DMPs are managed by a debt management provider. If you use a provider, like us, that charges a fee for its services, they will deduct a fee before paying your lenders. Some providers offer fee-free DMPs – the cost of the DMP is covered by your lenders.

During a DMP, you will be making payments on all of your debts but at a lower rate than you originally agreed with your lenders. Your lenders don’t have to agree to this, or to freezing your interest and charges. However, entering a DMP shows that you’re making every effort to repay the debt as quickly as you can afford to. So in practice, most lenders do agree. They may send you a formal notice that you have ‘defaulted’ on your debts. This will affect your credit history. Each default notice will show on your credit history for six years after it is issued. It’s likely that this will make it harder to get credit in the future.

What is an IVA?

An IVA is a formal debt solution supervised by an Insolvency Practitioner (IP). You agree to pay as much as you can afford (after allowing for your living costs, and the fees for setting up and managing your IVA) for a set period of time. This is usually five years. At the end of that time, if your financial circumstances haven’t improved, what remains of the debts included in your IVA are written off.

An IVA is a legally binding agreement, and this has implications for both you and your creditors. For an IVA to be approved, creditors representing at least 75% in value of the creditors who vote must agree to it. Once it’s been approved, none of the creditors included in your IVA can pursue you, apply further interest or charges to your debts, or take any further court action, as long as you keep to the terms of the agreement.

Although it is possible to vary these terms if your circumstances change, in general an IVA is less flexible than informal solutions such as a DMP. If your IVA ‘fails’, because you do not keep up the agreed payments or otherwise don’t comply with the terms of your IVA, your creditors may make a request for your bankruptcy.

Every IVA is public information and entered on to the insolvency register. An IVA will also affect your credit score. IVAs remain on your credit file for six years from the date your creditors agree to it or until your IVA is finished, whichever is later.

If you own your own home, you won’t have to sell it as part of your IVA. However, you could be expected to re-mortgage and free up some equity for your unsecured creditors. If you’re not able to remortgage, your IVA could be extended for an extra year. Our advisers can explain this in more detail.

So which one is better?

As with all debt solutions there are pros and cons to both DMPs and IVAs. Whether either one is right for you depends entirely on your circumstances. These include the amount and nature of debt you have, how quickly you want to pay it off, and your level of disposable income.

Both debt solutions will have an impact on your credit history. But that’s not necessarily a sign that they’re not for you. Any missed payments, defaults or CCJs you already have will be recorded in your credit history and will have damaged your credit score. A debt solution can help you press ‘reset’ on your finances by allowing you to repay or write off your problem debt. You can then focus on rebuilding your credit history.


We hope this has clarified some of the key points about DMPs and IVAs and the differences between them. There’s more information available on our debt solutions page here.

by Christine Walsh

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