Choosing which solution is best to deal with your debts is daunting. On balance will an IVA or Debt Management be a better option for you? Rather speak to someone? Call 0800 077 6180.
Included in this article:
- Which solution offers the greatest protection?
- Which lasts longer – IVA or Debt Management?
- Do both solutions write off your debt?
Which solution offers the greatest protection?
One of the key differences between an IVA and Debt Management is that the IVA is formal and legally binding. Once the Arrangement is in place, any action your creditors are currently taking against you must stop by law.
An IVA means interest and charges are frozen. No further collections action can be started against you. If you are a home owner your creditors can’t try to secure their debt by putting a charge on your property.
A Debt Management Plan (DMP) on the other hand is an informal arrangement. Even after your creditors have accepted your reduced payment offer, they can still take legal action if they wish (although this would be rare). They can also continue to add interest to your debts, although they may agree to suspend this.
The IVA provides protection against creditors that can’t be included in a DMP. These include tax owed to HMRC and CCJ debts.
Which lasts longer – IVA or Debt Management?
Usually an IVA lasts for a fixed term of 5-6 years. During this time you pay a reduce monthly payment based on the amount you can afford. This is reviewed annually and your payments may increase if your financial situation improves. Once you have made all your agreed payments the Arrangement ends. You are then debt free.
A Debt Management Plan differs in that there is no fixed end date. You have to continue making your monthly payments until the debt is paid in full. Typically your plan will last for up to 10 years depending on how much you can afford to pay.
It is possible to pay off a DMP early. For example if you start to earn more you can increase your payments and repay the balances more quickly. If you come into some money it will be possible to pay off your debt immediately.
It is possible to do a full and final IVA which is based on a lump sum settlement. These can be completed in a few months – contact us to find out if this could work for you.
Do both solutions write off your debt?
In a nutshell no. An IVA is a legal agreement to pay as much as you can afford towards your debt over a fixed period. At the end of the agreement what ever debt remains outstanding is legally written off.
Debt Management however simply allows you to reduce your debt payments. The total amount you owe must still be repaid, just over a longer period. You pay lower affordable monthly payments but the full debt will be paid back in the end unless you are able to settle with a lump sum.
Debt write off is naturally an appealing aspect of an IVA. However there are other things to consider. For example if you are a homeowner you may have to release equity from your property. This is not the case with a debt management plan.
The amount of debt written off during an IVA will vary depending on how much you can afford to repay.