IVA Or Debt Management Plan

Looking to find what the differences are between IVA Or Debt Management Plan

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What is a debt management plan and what is a iva?

Debt Management Plans (DMP)

A Debt Management Plan (DMP) is an informal agreement between you and your creditors to pay off your non-priority debts at a more manageable rate. A DMP is usually arranged through a debt management company or a charity, which negotiates with your creditors on your behalf. You make a single monthly payment to the debt management company, which then distributes the money to your creditors. DMPs are flexible and can be adjusted if your financial situation changes

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between you and your creditors to pay back your debts over a period of time, typically five years. An IVA is arranged by an insolvency practitioner, who will work with you to create a repayment plan that you can afford. Once the IVA is approved, your creditors are bound by its terms and cannot take any further action against you. At the end of the IVA period, any remaining unpaid debt is usually written off. An IVA can offer more protection and a structured plan compared to a DMP, but it also has more stringent requirements and consequences if not adhered to

What are the similarities between a DMP and an IVA?

  • Debt Repayment: Both DMPs and IVAs are structured to help you repay your debts in a more manageable way.
  • Monthly Payments: In both arrangements, you make a single monthly payment that is distributed to your creditors.
  • Creditor Negotiation: Both involve negotiating with creditors to potentially reduce monthly payments and interest rates.
  • Professional Assistance: Both plans are usually set up and managed with the help of a professional, such as a debt management company for DMPs or an insolvency practitioner for IVAs.
  • Credit Impact: Both DMPs and IVAs can negatively impact your credit score as they indicate financial distress and are noted on your credit report.
  • Non-Priority Debts: Both plans typically deal with non-priority debts, such as credit cards, personal loans, and overdrafts.
  • Avoiding Bankruptcy: Both DMPs and IVAs are alternatives to bankruptcy, helping you to manage debt without the severe consequences of bankruptc

What are the differences between a DMP and an IVA?

  • Formality:

    • DMP: Informal agreement that can be adjusted or cancelled more easily.
    • IVA: Formal, legally binding agreement approved by your creditors
  • Legally Binding:

    • DMP: Not legally binding; creditors can still pursue legal action.
    • IVA: Legally binding; creditors must adhere to the terms and cannot take further legal action.
  • Duration:

    • DMP: Flexible duration based on your ability to pay.
    • IVA: Typically lasts for a fixed period, usually five years.
  • Debt Write-Off:

    • DMP: No debt is written off; full repayment is expected.
    • IVA: Remaining debt is usually written off at the end of the IVA period.
  • Eligibility:

    • DMP: Available to anyone with unsecured debts.
    • IVA: Usually requires a minimum debt level and a regular income.
  • Impact on Assets:

    • DMP: Generally no impact on assets.
    • IVA: May require releasing equity from your home or other assets.
  • Involvement of Insolvency Practitioner:

    • DMP: Managed by a debt management company or charity, no insolvency practitioner needed.
    • IVA: Must be set up and managed by a licensed insolvency practitioner

Qualifying Criteria IVA

  • Minimum Debt Level: Typically, you must have at least £5,400.00 in unsecured debts.
  • Multiple Creditors: You should owe money to at least two different creditors.
  • Regular Income: A steady income is required to make the agreed monthly payments.
  • Ability to Pay: You must demonstrate that you can afford to make regular payments towards your debts.
  • Residency: You need to be a resident of England, Wales, or Northern Ireland. (Scotland has a different process known as a Protected Trust Deed.)
  • Insolvency: You must be insolvent, meaning you are unable to repay your debts as they fall due.
  • Creditor Agreement: At least 75% (by value) of your creditors who vote must agree to the IVA proposal.

Qualifying Criteria DMP

  • Unsecured Debts: You must have unsecured debts such as credit cards, personal loans, or overdrafts.
  • Multiple Creditors: You should owe money to more than one creditor.
  • Difficulty in Repayment: You should be struggling to make your monthly debt repayments.
  • Regular Income: While not always mandatory, having a regular income can make it easier to make consistent payments into the plan.
  • Willingness to Pay: You must be willing to repay your debts in full, albeit at a reduced rate that you can afford.
  • Creditor Cooperation: Creditors must be willing to accept reduced payments and possibly freeze interest and charges, although this is not guaranteed.
  • Budget Surplus: You should have a budget surplus, meaning you have enough money left over after essential living expenses to make regular payments into the DMP

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