DMP vs IVA: Which Debt Solution Is Right for You?
Compare the two main options for managing unsecured debt
Quick Answer: A Debt Management Plan (DMP) is informal agreement with creditors to pay what you can afford monthly. An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement, typically freezing interest and requiring a fixed term (5–6 years). DMPs are flexible but less certain; IVAs are legally protected but more restrictive. Choice depends on your income stability, amount of debt, and whether you need formal protection from creditors.
Understanding Debt Solutions
When you can't pay debts in full, you have options. A DMP negotiates directly with creditors to reduce payments. An IVA involves a formal insolvency process with a licensed insolvency practitioner. Each has pros and cons; the right choice depends on your situation.
Many people start with a DMP and later move to an IVA if the DMP fails. Understanding both options helps you make an informed decision.
Side-by-Side Comparison
| Aspect |
DMP |
IVA |
| What it is |
Informal agreement between you and creditors |
Formal legal agreement under Insolvency Act 1986 |
| Creditor approval |
Negotiated; some creditors may refuse |
Legally binding once 75%+ creditors agree |
| Interest frozen |
Usually frozen, but not guaranteed |
Usually frozen by law |
| Duration |
Flexible, typically 5–10 years |
Fixed term, typically 5–6 years |
| Cost |
Free (advisors may charge a fee) |
£2,000–£5,000 (insolvency practitioner fee) |
| Credit file impact |
Negative; stays 6 years |
Very negative; stays 6 years post-completion |
| Creditor can take action |
Yes, if they reject the plan or you default |
No, once approved (legally protected) |
| Assets at risk |
Generally safe |
Home equity may be assessed |
What the Law Says
Insolvency Act 1986 Part VIII
Governs Individual Voluntary Arrangements. Once approved, the IVA is legally binding on all creditors (even those who voted against it). Creditors can't pursue separate actions. This is IVA's main advantage: legal protection.
Consumer Credit Act 1974 Section 56–65
Protects consumers in credit agreements. Creditors in a DMP must act fairly; they can't demand immediate payment if you're in a genuine DMP. However, enforcement is less certain than with an IVA.
Insolvency Regulations 2016
Sets standards for IVA administration, fees, and procedure. Insolvency practitioners must be licensed and follow strict rules. This ensures fair treatment and transparency.
Which Should You Choose?
Choose a DMP if: Your income is stable but insufficient to pay debts in full. You want flexibility and lower formality. You prefer to maintain control and don't want your name on an insolvency register. You have few assets (so home equity isn't at risk).
Choose an IVA if: You need legal protection from creditors pursuing separate claims. Your debt is large and a DMP is unlikely to succeed. You want certainty that interest will be frozen and a defined end date. You can commit to a fixed term with a licensed insolvency practitioner overseeing the arrangement.
Key Advantages and Disadvantages
DMP Advantages: Free (usually), flexible, informal, less credit damage if managed well, no formal insolvency register. DMP Disadvantages: Creditors can refuse or withdraw, interest may continue, no legal protection, individual creditors can still pursue action.
IVA Advantages: Legally binding, interest frozen, creditors can't pursue separate action, fixed end date, often write off a portion of debt. IVA Disadvantages: Expensive (practitioner fee), significant credit damage, inflexible (penalties for missing payments), home equity assessed, public insolvency register.
Frequently Asked Questions
Can I move from a DMP to an IVA? ▼
Yes. If a DMP fails (creditors reject it or you can't maintain payments), you can propose an IVA. Once the IVA is approved, the DMP ends and creditors are bound by the IVA terms. This is a common progression.
Will an IVA affect my job? ▼
Most jobs are unaffected. However, some professions (finance, law, accountancy) require disclosure of insolvency. Check your employment contract. An IVA is a matter of public record, so disclosure is sometimes necessary.
Can I borrow more money while in a DMP or IVA? ▼
During a DMP, it's possible but difficult; lenders will likely refuse or charge high rates. During an IVA, it's legally restricted. You need your insolvency practitioner's permission for new credit. Most permissions are refused to prevent further debt accumulation.
What if I can't afford DMP payments after agreeing? ▼
Tell your advisor immediately. You can renegotiate payments (lower offer). If creditors refuse, the DMP breaks down and you're back to square one. This is when people move to an IVA or consider bankruptcy.
Can I own a home while in an IVA? ▼
Yes, but your home equity may be assessed. If you build significant equity during the IVA (e.g., house value rises), the practitioner may ask for a contribution from this equity near the end of the IVA. This is a risk with property ownership.