Can you stop your debt management plan and start an IVA

Can you stop your debt management plan and start an IVA

You are allowed to stop your debt management plan and start an IVA if you want. It would be a sensible option if your Plan is likely to last a long time or you have taken more debt since it started.

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Is an IVA better than a debt management plan?

There are a number of reasons why it might be sensible to stop your debt management plan (DMP) and start an IVA.

One of the main problems with a DMP is the time it takes to pay off your debt. It continues until you have either paid everything you owe in full or have reached an agreement to settle with a cash lump sum. For this reason, you will normally have to continue paying into the Plan for 5-10 years.

An IVA lasts for a fixed period. This is normally 5 years (although it could be 6). As such, stopping your current Plan and starting an IVA will often mean that you become debt free much faster.

If you have borrowed additional debt since you started your DMP, this can be added to your IVA. All your debt is then consolidated into a single solution with one affordable monthly payment.

Another advantage of an IVA is that you can include more types of debt. Tax debt owed to HMRC can be included and so too can a CCJ. If any of your creditors are taking money from your wages, this will stop once your IVA is in place.

Unlike a debt management plan, an IVA gives you legal protection from your creditors. any CCJs you have are overturned and interest charges are frozen.

Are there disadvantages of starting an IVA?

Although there are a lot of advantages if you stop your debt management plan and change to an IVA, there are also some disadvantages which you need to consider.

If your income increases during your DMP, you can decide what to do with the extra money you earn. However, if you are in an IVA, you have much less control. You must declare the change and it is likely that your payments will go up.

The same thing happens if you earn additional overtime. Once you are in an IVA, 50% of this will have to be paid to your creditors over and above your normal monthly payment.

An IVA is also less flexible if you get a windfall. This would be something like an inheritance or a compensation payment. Where this happens during the Arrangement, the funds you get would all have to be paid towards your debts. This is not the case in a DMP where you can keep these funds and make your own decision about how you will spend them.

If your income is likely to significantly increase in the next few years or you know you will get a windfall such as inheritance, you should think twice before starting an IVA.

How do you stop your debt management plan?

Stopping your debt management plan and starting an IVA is a simple process. You can apply while your DMP is still running.

It will normally take about 4 weeks to get your IVA set up and agreed. There is no need to cancel your DMP payments during this time. If you want, you can continue to pay them. This will ensure your creditors don’t start to hassle you.

That said, it will make no difference to the outcome of your IVA whether you continue to pay your DMP or not. If you prefer, you can stop the payment and save the money.

If any of your creditors start chasing you again, you can be honest with them. Tell them that you are applying for an IVA and the appropriate documentation will be with them shortly. Ask them to put your account on hold to give time for the Arrangement to be agreed. They will almost certainly do this.

Where you are continuing to make your DMP payments, you simply cancel these once your IVA is accepted.

You don’t need to worry about whether you will owe your debt management company anything. You do not. If they charge, the final payment they are allowed to take will be from the last payment you make. They can’t charge you anything else.

Thinking of cancelling your debt management plan and starting an IVA? Give us a call (0800 011 4712) or complete the form below. The advice is free and confidential.

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