Whilst there are other solutions, people in debt often turn to either a DMP or an IVA. So IVA v DMP – which is a better?

Jump to contents:

• Which debts can be included: DMP v IVA
• How long does it last: DMP v IVA
• Which solution can protect my home?
• DMP v IVA: an informed choice

Trying to choose between a DMP and IVA? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts.

Which debts can be included: DMP v IVA

Both DMPs and IVAs are used to deal with unsecured debts. These are debts owed to commercial banks and lenders. They include bank loans, credit cards, store cards, catalogues and payday loan debts. All can be included in both solutions.

However it is more difficult to include some debts to a DMP.  These include tax and VAT debts owed to HMRC or if a County Court Judgement has already been issued. In these circumstances it is normally better to consider an IVA in the first instance which can included these types of debts as standard.

The DMP is however an informal agreement. It is possible, though not always advisable, to keep some debts out of your DMP. There are various possible reasons you might want to do this and of course you must not ignore the debt. An IVA is formal and legally binding and all debts must be included.

Call us for advice if you are unsure about which debts you need to include in your plan. It is vital that you deal with all your debts, one way or another.

How long does it last: DMP v IVA

This is probably one of the main differences. These solutions are fundamentally different in that an IVA is a fixed term and a DMP is open ended. The reason for this is that the IVA will write off some of your debt, wheras the DMP will not.

A DMP works on the basis that you reduce the monthly payments you make to an amount that you can afford. However you still have to pay all your debt back in full. Clearly then if your debts are large this could mean that it takes many years to pay them all back and complete your Plan.

A key advantage of the IVA solution is that you will normally only pay the amount you can afford for a total of 60 months or five years. After that time any unpaid debt is written off.

If you need a flexible short term solution a DMP may fit your needs. However an IVA will provide a more definite binding solution, and you know when you will become debt free.

Which solution can protect my home?

Property owners who start an IVA will have to agree to release equity if you can. If there is equity in the final year of the Arrangement you are then obliged to try to re-mortgage to release some of this which is then paid as extra to your creditors.

If your are unable to re-mortgage because a suitable mortgage product is not available the Arrangement will then be extended for an extra 12 months to make six years of payments in total.

The DMP solution does not require you to release equity from your property. As such if you have equity in your home you do not have to remortgage to release this if you do not want to. Some home owners therefore prefer to start this type of Plan as it means that they can keep their property separate from dealing with their debts.

Note – if you choose a DMP, creditors may try to secure their debt on your via a County Court Judgement and a Charging Order. Call us for advice quickly if this is happening as this may reduce your options.

DMP v IVA: an informed choice

In reality neither of these two is better than the other. They both have their own set of advantages and disadvantages and whether they are appropriate for you or not will depend both on your financial circumstances and your attitude to dealing with your debt.

It is certainly the case that the solution that is right for one person will not be right for another. Given this when deciding which to use you have to compare the two based on a number of important different criteria. The only way to be sure is to discuss this with a debt advisor.

The IVA will provide legal protection from creditors, a fixed 5 year term, frozen interest and debt write off. However a DMP offers a flexible approach where situations are less certain. It will not normally effect your home equity which may be useful for property that is jointly owned.

Your credit rating will be effected whether you do an IVA or a DMP. However a DMP usually takes longer to complete, so it would take longer before your credit rating could start to repair.