Money Advice, Debt Advice & Debt Help
Is starting a DMP before an IVA a good idea?

Is starting a DMP before an IVA a good idea?

There is no legal requirement to start a Debt Management Plan (DMP) before you can apply for an Individual Voluntary Arrangement IVA. You are in no way obligated to do so and it is your choice.

If you feel that you have taken the right advice about how to solve your debt problem and believe that an IVA is right for you then there is no reason why you should not start your application immediately.

That said there are a number of reasons why it might be sensible for you to go into a DMP first and you should consider these before making your final decision.

Should I start a DMP if I am unsure that I can afford IVA payments?

One of the main reasons for delaying your IVA application is if you are unsure about the sustainability of your income. If you start and then find that the payments you have agreed are unaffordable it is not easy to reduce these and the Arrangement  could fail meaning that you will have wasted time and money.

For this reason if feel your income might change or you are unsure whether or not you will be able to afford the required payments starting a DMP first is a sensible idea.

If you use the Plan for a few months it will give you a breathing space from your creditors while you see how things go. If your income does fall or you are still struggling based on the payments you are making you can then decide whether to continue with the Plan on a reduced amount or apply for an IVA based on lower payments.

BMD Tip: If you have just started a new business and you have no track record showing the amount of income you will be able to generate you will almost certainly have to use a DMP for 6 months or so before you can apply for a monthly payment IVA.

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Should I use a DMP if I am expecting a windfall?

If you start an IVA and then receive a windfall such as inheritance money or a compensation payment you will need to pay this money into the Arrangement.

On the other hand if you receive a windfall while you are a DMP you are not normally obliged to pay this towards your debts. You can decide what you will do with the money (although this might not be the case with PPI payments).

As such if you know that you are going to receive a windfall in the near future it might be best to use a DMP until this has happened. You can then decide how to use the money. This might be especially useful if you have urgent expenditure such as the need for a new car or some home improvements.

BMD Tip: You could use the money to make a settlement offer to one or more of your creditors in your Plan. By settling your debts in this way you may avoid the need to start an IVA altogether.

Is it best to use a DMP if I am unsure whether an IVA is right for me?

A DMP  is an informal agreement. There is no formal obligation on you to pay extra money you receive into the plan, to release equity from your property or even stick to the payments. As such it is far more flexible than an IVA.

If you are worried  about committing to being legally bound by an IVA then rather than just sitting and worrying about your decision and doing nothing it would be better for you to start with this informal Plan and benefit from its flexibility and more relaxed nature.

There is nothing to stop you starting the Plan and then simply seeing how things go for 6 months or so. After you have had time to think without all the pressure from your creditors you will be in a far better position to decide whether swapping to an IVA would be the right thing.

What are the downsides of delaying your IVA application?

If you have decided that an IVA is the best solution for your situation then there is no reason to delay your application. In fact doing so will almost certainly mean that you will have to pay more back to your creditors.

Every month that you continue to pay your creditors outside of the Arrangement is in affect a payment wasted as they will not make it any shorter. The sooner you start the sooner the payments will be over and the sooner you will be debt free and able to start rebuilding your credit rating. As long as you remain in a DMP this process will be delayed.

Nevertheless it is not sensible to start an IVA unless you are confident that it is the right solution for you and you will be able to sustain the required monthly payments. If you are in any doubt about this is it always best to start a DMP first.

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