If you are looking for a way to deal with your debts, you are likely to come across a debt management plan (DMP) and an individual voluntary arrangement (IVA). These are both common solutions for clearing debt, but they work very differently. In this article, we explain the differences so that you can understand which solution might suit you best.

A quick summary

A DMP is an informal arrangement where you repay your non-priority debts through an affordable monthly payment. An IVA is a contract that usually lasts five or six years and may write off some remaining debt at the end.

Whether a DMP or IVA is better for you will depend on factors such as:

• your surplus income;
• how much you owe;
• how stable your circumstances are; and
• whether you need legal protection from creditors.

What is a DMP?

A debt management plan (DMP) is an agreement with your creditors for you to repay your debts at a rate you can afford. A DMP does not write off any debt. You aim to repay the full amount you owe.

A DMP provider will try to reach an agreement with your creditors. You work out a budget with the DMP provider and agree on a single affordable monthly payment. When a DMP is set up, you make the monthly payment to the DMP provider, and they share it fairly between your creditors.

DMPs normally deal with non-priority debts only, such as credit cards, overdrafts and personal loans. If you have any priority debts, such as gas or electricity arrears, you will usually need to pay these separately.

Although some DMP providers charge a fee for their services, you should be able to find a free DMP provider. Using a free provider means all of your payments go towards reducing your debt.

Creditors often agree to freeze interest and charges during a DMP. Once a DMP is agreed, creditors usually stop action to recover debt. However, a DMP is an informal arrangement. This means that there is no guarantee that creditors will agree to any of these things.

As a DMP is an informal arrangement, you are not tied into making a fixed payment for a set period. If your situation changes, you can ask for a review of the DMP to keep your payment affordable.

Read our Debt management plans guide to learn more.

What is an IVA?

An individual voluntary arrangement (IVA) is a legal agreement managed by an insolvency practitioner (IP). An IVA normally involves you making a proposal to pay as much of your debt as you can in exchange for the rest of your debt being written off.

The most common type of IVA is for you to make a monthly payment for a period of five or six years. However, it is also possible to have an IVA based on:

• a lump-sum payment;
• sale of assets;
• or any combination of a lump-sum payment, sale of assets and instalment payments.

An IP will help you put your proposal together. Most types of debt can be included in an IVA, but for some debts you will need to make an arrangement outside of the IVA. These commonly include rent arrears, mortgage arrears, magistrates’ court fines and child maintenance arrears.

Your IP will put your proposal to your creditors for a vote. The IVA will be approved if the creditors who vote in favour make up at least 75% of the total debt included in the vote. After it is approved, the IVA will apply to all creditors that were included, even those who voted against it.

IPs will charge a fee for their services. Most IPs agree to take their fees from the payments you make into the IVA. It is best to avoid an IP that charges an up-front fee because there is no guarantee that creditors will accept your IVA proposal.

An IVA will give you protection from your creditors. Creditors included in the IVA must freeze interest and charges and they cannot take action to recover the debt from you.

As an IVA is a formal agreement, you will have to follow the terms and conditions of your IVA. This includes:

• sticking to the payments you proposed;
• keeping the IP updated on changes to your income; and
• a review of your payments every year to see if you can pay more (if you have an instalment-based IVA).

If you do not stick to the terms of your IVA, it may fail. This would mean creditors can add interest and charges, and they can restart recovery action.

Read our Individual voluntary arrangements guide to learn more.

Key differences between a DMP and an IVA

Although both solutions help you deal with unaffordable debt, they work in different ways.

• Length: IVAs tend to run for a set period, usually five or six years. DMPs do not have a fixed term, they vary depending on how long you need to repay all your debt.
• Protection from creditors: IVAs offer stronger protection. Creditors in an IVA cannot take recovery action and they must freeze interest and charges. In a DMP, creditors may agree to the same protections, but they don’t have to, and there is nothing to stop them changing their minds later.
• Writing off debt: A DMP aims for full repayment of your debt. An IVA usually sees you repay part of your debt during the term of the IVA, with the remaining balance written off when the IVA ends.
• Flexibility: It’s easier to change payments in a DMP if something unexpected happens. IVAs have limited flexibility. IPs may require creditor approval for some changes, and there is a risk of your IVA failing if you cannot maintain the payments that were required under the IVA.
• Risk: An IVA carries more risk if your situation changes. If your IVA fails, your debt won’t have reduced by the amount you paid. This is because part of your payments will have gone to pay your IP’s fees. Creditors will also be able to add interest and charges that built up during the IVA.

DMP vs IVA: pros and cons

Debt management plan

The following table outlines the main pros and cons of a DMP so you can quickly understand how it compares to an IVA.

Pros	Cons
DMPs are easier and quicker to set up.	DMPs can take longer as you repay all of what you owe.
DMPs are more flexible, and repayments can be adjusted if your circumstances change.	There is no guarantee that creditors will freeze interest and charges.
Free DMPs are available, meaning all the payments you make will go to your debt.	Creditors can still take action to recover debt.

Individual voluntary arrangement

The following table outlines the main pros and cons of an IVA so you can quickly understand how it compares to a DMP.

Pros	Cons
IVAs are normally for a set period, giving you more clarity about when you will be debt free.	Limited flexibility means there is a risk of your IVA failing if you cannot maintain payments.
Creditors in an IVA must stop interest and charges, and they cannot take action to recover debt from you.	You will need to pay fees for an insolvency practitioner. These usually come out of the payments you make, so they may only become a problem if your IVA fails.
Usually, when an IVA completes, the remaining balance of debts in the IVA is written off.	Your IVA is recorded in a public register, the Individual Insolvency Register. This will show details such as your name, date of birth and address (although it may be possible to withhold your address if you are at risk of violence).

When a DMP may be suitable

• You will need to have enough money to cover your essential living costs and still have money left over to pay into a DMP.
• It can be a good option if you have mainly non-priority debts that you want to repay in full.
• A DMP may suit you if you expect changes in your circumstances and are unsure how these will affect what you can afford. For example, if your job is on a fixed-term contract or you are expecting a change in your household.
• This solution may also work well for you if you want support with negotiating reduced payments and asking creditors to freeze interest and charges.

When an IVA may be suitable

• You will need to be able to meet your essential living costs.
• If you want an IVA based on monthly payments, you will need money left over every month to pay into the IVA.
• An IVA may be an available solution if you can offer a lump-sum payment or have assets that can be sold to raise funds.
• This solution is usually more suitable if you have debt that you cannot repay in full, and your situation is stable enough for you to commit to regular payments.
• It may also be a good fit if you need legal protection from your creditors. For example, if you are a homeowner, an IVA can stop creditors taking action that affects your home (such as obtaining a charging order or applying for your bankruptcy).

Can you switch from an IVA to a DMP?

An IVA is a legally binding agreement, which cannot be converted into a DMP.

If your IVA ends early, you may be able to consider a DMP. But an IVA usually only ends early if you cannot maintain the payments. There can be consequences if your IVA ends early, such as:

• creditors restarting interest and charges (and they can also add these for the period the IVA was in place);
• your debt not having reduced by the amount you paid into the IVA (as some payments would have covered your IP’s fees); and
• creditors taking action to recover debts (in rare cases, this can include an application to make you bankrupt).

You should only apply for an IVA if you are confident that you will be able to see it through to the end.

A more common change is to move from a DMP to an IVA. Examples of when you might think about doing this are:

• if you are in a DMP but a change in your situation means you cannot realistically repay your debt in full; or
• if you want to use a DMP to see if you can stick to a budget and make a regular payment before committing to a formal agreement.

Other ways to deal with your debt

A DMP and IVA are only two of several possible debt solutions. Depending on your circumstances, you may want to look at other options, such as negotiating payments yourself, a debt relief order (DRO) or bankruptcy. Each comes with different advantages and considerations, so it’s worth understanding the full range of choices.

See our Ways to clear your debt guide to see the different solutions which may be available to you.

How to choose the right debt solution

It isn’t easy comparing debt solutions. You do not have to do this alone. A debt adviser can talk through your situation. An adviser can gain an understanding of your financial situation now, whether your circumstances may change, and what matters most to you. With this information, a debt adviser can help you compare the different solutions available and explain the benefits and risks of each one.

Get free debt advice

National Debtline offers free, confidential advice. Whether you’re thinking about a DMP, an IVA or something different, we’re here to help you work through your next steps.

• Visit our website
• Use our webchat service
• Get help completing a budget through My Money Steps
• Call us on 0808 808 4000