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Do you know the difference between IVAs and DMPs? We explain how these solutions work.
If you’ve got unsecured debts you can’t pay back, you might have heard of IVAs and DMPs. They’re both debt solutions, but which is better? Before we find out, it’s important to say that DMPs are available in Scotland but IVAs aren’t. Debt Arrangement Schemes and Trust Deeds offer similar benefits and are available to residents of Scotland.
Which is better?
The short answer is that neither one is better than the other – it all depends on your circumstances. They both make your payments towards your unsecured debts affordable, but there are also important differences between them.
The best way to find out which one is right for you, is to speak to a trained debt advisor. An advisor can talk to you about your financial situation, work out your budget and tell you which solution is right for you and why. Just get in touch using the options at the top of the page.
How does a DMP work?
A Debt Management Plan (DMP) is an informal solution for people who have unsecured debts they can’t afford to pay back at the rate they originally agreed to.
When you start a DMP, you pay an affordable amount to your creditors each month. You can go through a debt solution provider to get a DMP, or you can contact your creditors yourself and negotiate lower payments.
A DMP will last as long as it takes to repay all your debts on the plan. Creditors don’t have to freeze your interests and charges on a DMP, but they do agree to in many cases.
How does an IVA work?
An Individual Voluntary Arrangement (IVA) is a formal debt solution to deal with insolvency. Insolvency simply means that you can’t pay your debts when they are due, or that your debts are worth more than your assets. Unlike a DMP, it has a fixed term - usually five or six years.
You can’t arrange an IVA by yourself, it needs to be done through an Insolvency Practitioner. Your Insolvency Practitioner will work out how much you can afford each month and will send an IVA proposal to your lenders. As long as your lenders agree, your IVA can go ahead and they also have to freeze interest and charges.
You pay an affordable amount towards your debts while your IVA lasts and, when it ends, any remaining debt is written off completely – so with an IVA you may not end up repaying all that you owe.
One of the key differences between an IVA and a DMP is that you might have to release equity from your home and put the money towards your debts, if you’re on an IVA and you’re a homeowner. However, an IVA does protect you from any further legal action from you creditors, whilst a DMP doesn’t guarantee this.
Of course both solutions do have their downsides too – for example both an IVA and a DMP will show on your credit history for six years from when they start. Your debt advisor will run through both the pros and the cons in detail, so you can make an informed decision.
Help with money worries
So there you have it – those are the basic differences between IVAs and DMPs. The good news is there’s lots of help out there for people worried about their money situation. Make sure you speak to a trained debt advisor to find the best way forward for you.
by Christine WalshBack to blog home