How Are Debt Management Plans, DROs, IVAs and Bankruptcy Different?
Debt Management Plans, Debt Relief Orders, IVAs and bankruptcy are four very different ways of dealing with debt.
Debt Management Plans, Debt Relief Orders, IVAs and bankruptcy are four very different ways of dealing with debt.
The most important difference is that they do not have the same eligibility rules, legal protection, costs or consequences.
Debt Management Plan, informal repayment
A DMP is normally used for non-priority unsecured debts. You make an affordable payment that is distributed to creditors.
It is informal, so creditors are not automatically bound and interest is not automatically frozen. It may last many years.
Debt Relief Order, formal insolvency for people meeting strict limits
A DRO can be available in England and Wales where debts, spare income and assets fall within the current limits and the other rules are met.
There is no application fee, but an approved intermediary must apply. Qualifying debts are generally written off if the DRO completes successfully.
IVA, formal agreement with creditors
An IVA is legally binding once approved and commonly involves contributions over several years.
It can include significant fees and conditions. Home ownership, assets and changes in income can matter, and failure of the IVA can have serious consequences.
Bankruptcy, formal insolvency process
Bankruptcy can deal with many debts but may affect assets, income and property. In England and Wales the current application fee is £680.
Not every debt is included or written off.
How do I compare them?
Look at your total debt, priority debts, disposable income, assets, home ownership, employment, likely future changes and how long any repayment arrangement would last.
Also compare legal protection, credit-file impact, fees and what happens if the solution fails.
There is no universally ‘best’ solution
A person with no assets and very little spare income may need a completely different answer from a homeowner with stable income.
Get free, appropriately authorised debt advice and ask the adviser to explain why the proposed route is preferable to the realistic alternatives.
7.52: What Is a Debt Relief Order?
7.53: What Is an IVA?
7.54: What Is Bankruptcy?
7.56: What Questions Should I Ask Before Agreeing to a Debt Solution?
Important information
This guide provides general information and is not intended to provide financial, benefits, debt, housing or legal advice. Individual circumstances can be different. Check current information from official sources and seek advice from an appropriately qualified or authorised adviser before making important financial decisions.