Familiarising yourself with the differences between IVAs and DMPs

Have your debts cleared by choosing the option that works best for you.

09:48 08 November 2013

There are two great methods that you can use to deal with unsecured debts and they are Debt Management Plans (DMPs), and Individual Voluntary Arrangements (IVAs).

Under IVAs, those with mortgaged or owned properties are usually subjected to equitable release all in a bid to favor your creditors. This process will increase your creditor’s dividend although; a large amount of the debt will still be cancelled. Some major facts about IVAs are:

• They are legally binding, so shouldn’t be taken carelessly.
• IVAs lasts five years and have a large amount of the debt written off.
• CCJs and charging orders are usually difficult for creditors with IVA.
• On completion of the IVA, your credit score stands a chance of being fixed or repaired.

A DMP, on the other hand, is not legally binding so your creditors don’t have the full rights to freeze your interest rates or charges. The advantage DMPs have to IVAs is the fact that it is flexible and may remain open even in difficult circumstances.

• Since DMPs are not legally binding, your creditors reserve the right to take court actions against you.
• It is possible for DMPs to remain in place until full repayment of debts and interest charges in some cases.
• You have no guarantee that your creditor will freeze interest and charges as all debts must be repaid.
• Since DMPs are informal, creditors may decide to spring up changes to your agreement whenever they wish.
• It is possible for you to face difficulties with your credit rating for the whole DMP duration.