IVA or DMP, Question by Question
The differences that actually matter when you are choosing between them.
Is an IVA better than a DMP?
Neither is automatically better. A DMP tends to suit people who can repay their debts in full given more time and a lower monthly rate, especially if their situation may improve. An IVA suits people who cannot realistically repay in full and need part of the debt written off, with the protection of a binding agreement. The right one depends on how much you owe and what you can afford.
What is the main difference between them?
A DMP is an informal arrangement to repay your debts in full at a reduced rate, with nothing written off. An IVA is a formal, legally binding insolvency where you pay what you can afford for five to six years and the rest is written off. So a DMP is more flexible but clears nothing; an IVA is rigid and binding but can write off debt.
Will my debt be written off?
Only with an IVA. In an IVA, any qualifying debt left at the end of the term is written off, so you usually repay less than the full amount. A DMP repays your debts in full, so nothing is written off, it simply makes the monthly payments more manageable and gives you more time to clear them.
Is the interest and charges frozen?
In an IVA, interest and charges on the included debts are frozen once it is approved, guaranteed. In a DMP, many creditors will freeze or reduce interest as a gesture of goodwill, but they do not have to, and some may keep adding it. That uncertainty is one of the main differences between an informal plan and a formal one.
Is it legally binding, and am I protected from creditors?
An IVA is legally binding once approved: included creditors must follow its terms and cannot chase you or take court action while you keep to it. A DMP is not binding, so creditors can still add interest, contact you, or take action if they choose, even while you are paying. The binding protection of an IVA comes at the cost of flexibility.
Which is worse for my credit rating?
An IVA is generally more serious for your credit. It is a form of insolvency, so it appears on the public Individual Insolvency Register and stays on your credit file for six years. A DMP is not insolvency and does not appear on that register, though reduced or missed payments and any defaults will still show. A DMP is usually the lighter touch of the two.
How long does each one last?
An IVA runs for a fixed term, typically five to six years, then ends with the remaining debt written off. A DMP lasts as long as it takes to repay your debts in full at the reduced rate, which can be longer, since you are repaying everything. The choice is between a fixed end date with write-off and a longer plan that clears the whole debt.
Is a DMP cheaper than an IVA?
A DMP can be free, set up by charities such as StepChange or PayPlan, and you never have to pay for one. An IVA has no upfront fee, but the practitioner's costs come out of your payments. However, because an IVA can write off part of the debt, the total you repay may still be lower than a DMP, where you repay everything. Which is cheaper depends on whether write-off applies to you.
Which is more flexible?
A DMP is far more flexible. You can change the payment, pause it, or stop it, and switch to another solution if your circumstances change. An IVA is fixed: the terms are agreed up front, and if you stop paying it can fail, which may lead creditors to resume action or even seek bankruptcy. Flexibility is one of the DMP's biggest advantages.
How do I decide which is right for me?
Get free, impartial advice first. A free adviser will look at how much you owe, your income and what you can afford, and tell you honestly whether repaying in full through a DMP is realistic, or whether an IVA's write-off would serve you better. They can also point you to other routes, such as a Debt Relief Order, with no obligation.
