Before you enter an IVA, there are a number of things to consider. One of the most common mistakes people tend to make is confusing an IVA with a Debt Management Plan (DMP). While the two debt solutions are very different, many advisors paint a picture of the two being similar. The main differences between the two are:
Frozen charges
From the moment the term of an IVA debt starts, all further interest charges and fees are frozen. However, a DMP doesn’t guarantee this and creditors could potentially continue to add charges throughout the payment period, leading to increased amounts of debts.
Administration
DMP’s, unlike IVA’s, can either be self-administered or used in partnership with a third party who will deal with your creditors. IVAs, however, cannot be approved without employing the services of a licensed Insolvency Practitioner.
Public information
When you enter in to an IVA your details will be published in an online register which anyone can access. There is no register of this kind for a DMP.
Formal agreement
A DMP is an informal agreement made between you and your creditors. An IVA, meanwhile, is a formal arrangement which involves you, an insolvency practitioner and you creditors. The formal arrangement must include a document detailing your payment plan. This must be agreed by creditors before an IVA can go ahead.
Information required
Prior to setting up an IVA a meeting must be arranged to go over every aspect of your financial situation. This includes every expenditure and earning as well as discussing in great detail who you become insolvent. With a DMP you only need to provide documents showing proof of income and proof of debt.
Flexibility
DMP’s have a greater degree of flexibility than IVA’s. With an IVA, payments can only be increased by up to 15% – which must also be accepted by your creditors. However, if you wish to change how much you pay with a DMP, you can do so whenever necessary.
Creditor control
For an IVA to go ahead the creditors who are owed 75% of your debt must agree to the proposal. With a DMP no such creditor approval is required.
Creditor contact
Although creditors have more influence over an IVA in the initial stages, once the IVA term begins they are legally forbidden from contacting you about anything related to the money you owe them. With a DMP creditors still have the right to contact you and the debt collection process can continue as normal.
Time limit
Generally, an IVA lasts no longer than a period of five to six years. This can be extended by a year if your personal or financial circumstances change and if the extension is approved by your creditors. A DMP has no limit due to its flexibility with payments.
Lower limit
DMP’s for the most part don’t have a lower debt limit. This can depend on your own financial circumstances and the debt provider. IVA’s do have a lower debt limit of around £15,000.
‘Written off’ debt
When you finish the payment period of an IVA your remaining debt is written off. On the other hand, since a DMP can last for an unlimited amount of time and has flexibility in how much you pay each month, your debt must be paid off in full in order for it to be concluded.