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Should i choose an IVA or Debt Management Plan?

Posted on 29. Jan, 2010 in Loans and debts

When faced with considerable levels of debt, choosing the right course of action is a difficult decision to make. For debts of over £15,000, an IVA or Debt Management Plan are often the most suitable routes moving forward to get back into the black while avoiding the stigma of bankruptcy.

An IVA, also known as an Individual Voluntary Arrangement is a government initiative aimed at helping individuals pay back as much of their outstanding debt back to their creditors as possible, without running into bankruptcy. There are however, a few conditions that must be met to be eligible for this type of arrangement.

Firstly, you will need to have £15,000 or more to be considered qualified for an IVA.  The IVA is legally binding, so you will know exactly where you stand with your creditors, which can ease a great deal of worry from your mind. Usually, upon successful completion of an IVA, a percentage of the debt owed is written off, so you will have a more manageable monthly payment plan. The usual term of an IVA is around 5 years, during which your payments are distributed by your Insolvency Practitioner, so you no longer have to deal with creditors.

A Debt Management Plan, also known as a DMP is a way in which a third party, such as an Insolvency Practitioner, helps you to renegotiate your debt with your creditors to create a more affordable payment plan and freeze your interest. This is done in the interests of both the debtor and the creditor to ensure continual repayments are made on the money owed. A Debt Management Plan is typically associated with unsecured debts, such as personal loans or credit card debts, rather than a mortgage for example. The length of a Debt Management Plan can vary and is also not legally binding, which may not suit everyone as it means creditors are not tied to an agreement and can change their mind at any time.

When choosing either an IVA or Debt Management Plan, it is important to seek professional financial advice as either agreement may not be suited to your financial situation.