IVA or DMP?

Jeddy_Boy

Hi everyone, new MSE forum user here so apologies if i'm posting in the wrong place! I wondered if you might be able to help me with some advice in choosing between an IVA and DMP?

I've spent many hours and days reading through the various pro's and con's of each approach and to be honest, i'm still having a hard time choosing between them. I thought it might be useful to briefly outline my own personal circumstances and then gauge what the majority verdict seems to be among other Forum members.

I have unsecured debts of circa £49k across 7 creditors and have gone through a detailed income and expenditure exercise with Payplan who so far appear excellent to deal with. They've offered me two options as follows:

1. A DMP paying £668 per month over 5.5 years.

2. An IVA paying £628 over 5 years.

On the face of it, the IVA would appear better as it's a shorter period of time. However, there is no equity in my property and will certainly be no equity four of five years down the line when they request a remortgage. This will likely result in a 6-year IVA, meaning a longer plan paying back more in total than the DMP.

I'm obviously keen to reduce the term as much as possible and would anticipate my income growing throughout the lifetime of the plan. I therefore want the flexibility to be able to increase the monthly payment in line with this. However, whilst it would appear the DMP offers the greater degree of flexibility, I am concerned about creditors taking legal action under the DMP.

I have been reassured by reading other posts by Payplan customers that creditors had been largely silent during their DMP's and had taken no such action. However, I remain concerned about the reaction of my creditors as i've literally not missed a single payment for several years with no defaults, CCJ's or such like.

I'm rambling now, so i'll leave it there and hope to get some feedback from you guys. My sincere thanks in advance.

Jeddy Boy

adfax

I am sure someone will correct me if I am wrong, but here goes ...

I have just gone into an IVA with CCCSVA, and it was / is my understanding that the IVA will only be extended to 6 years if I have more than roughly 15% equity in year 5, but I can't raise a mortgage to release that equity. As long as I can show that I have made a reasonable attempt to get the funds and been refused, they will accept that but will extend the IVA by 12 months.

On the other hand, if there is little or no equity, then the IVA will end at 5 years.

Good luck.

ciderwithrosie_2

That seems quite a high repayment (I guess you may have more disposable income) - but have you asked any other firms to give a quote? I'm paying £470 a month on a debt of £55k in an IVA. I only ask as I rejected national debtline's IVA proposal as unworkable, as that was over £600 pm. I did my own DMP for a year and got all but one of my creditors (one of the smallest too) to agree to it and freeze interest, they were the spanner in the works which led me back to the CAB for help and they suggested I had nothing to lose by talking to a local firm who came in once a month to see clients. I was originally splitting £400 between my creditors and the IP went with this as a proposal. They did ask for over £500 at the creditors meeting but my IP managed to get it down to £470.
Might be worth shopping around a bit.


regards CWR

Jeddy_Boy

Thanks for that adfax, and if you're right, it might certainly tip the balance in favour of the IVA over the DMP. However, I must admit to having read on various websites that in those cases where there is no equity to call upon at the end of the plan (as opposed to there being equity which cannot be released due to an inability to secure a remortgage) it is likely the IVA is extended by an extra year. Hope this makes sense!?

Jeddy_Boy

Thanks also to CiderwithRosie for a really useful post in that, no, I haven't sought a quote from an alternative source and will certainly do so. You're right in that I have a good level of disposable income and currently pay circa £1,150 per month to my creditors. In this context, an IVA at £630 is probably quite reasonable. I'm having to consider entering into a plan due to a prolongued rental void on a property I own which has produced a shortfall of some £600 in my monthly income. Thanks again for your help.

Charco_2

No, Adfax is correct. If there is no equity in your property then there would be no reason to extend your IVA.

Also, since you'd only be able to remortgage to a value of 85% of your home then even if you had some equity you might not be expected to deal with it for the benefit of your creditors... keeping it simple:

House = £100,000
Mortgage = £90,000
Equity in your property then = £10,000

However, no mortgage company will offer a mortgage over £85,000... you cannot realise your equity without selling (which would have a number of costs anyway: solicitor fees, estate agent fees, mortgage penalty clause?, relocation costs... it's not worth anyone forcing you to sell!) On paper you have equity in reality you don't! (obviously i don't know the figures in your case but the percantages are the same. Most IVAs will have a clause saying that you wont have to sell. If you do have equity but cant realise it you might have to do the extra year's payments)

However, I dont think that that is the main issue!
You're comparing a DMP and an IVA of roughly the same timescales BUT the timescale of the IVA is guaranteed to be five years, six maximum. The DMP is not!
As it stands, a DMP for £49k paying off £668 a month will last for 73 months which is just over 6 years... IF ALL INTEREST AND CHARGES ARE FROZEN - which in my experience will take about 6 months or longer and even then, those debts which do get frozen, can (and most likely WILL) be unfrozen later because the arrangement is informal. So the DMP in reality will last much longer than the originally stated 6 years.
Another thing to remember is that because the DMP is informal, every month you pay in a certain amount, if that does not cover the minimum repayments required by your creditors then they can mark a default on your credit file EVERY MONTH right up until the debt is repaid, these will remain on your credit file for six years (so six years to pay the DMP and six years to let the traces of it vanish from your file). In an IVA, notes on your credit file must coincide with the date that your arrangement started and so will be gone one year after you finish paying your IVA.

Just a footnote to what CiderwithRosie was saying: in theory there should be no difference in your Disposable Income regardless of who you go to for your IVA - everybody should be using the same guidelines as provided by bank lackies the CCCS. In practice there can be a little bit of a difference because the guidelines provided are very tight and would almost make an IVA unworkable. So some IVA companies will stretch the guidelines to make sure the monthly contribution you commit to is actually affordable. Some companies might just list what you tell them to and accept that that is what you can afford, others will remind you that you haven't made allowances for various allowable expenses that you may have forgotten about.

Choo_Choo_4

It is worth getting advice from a few different Insolvency Practitioners indeed - not so much to shop around (it's not like you're looking a quote for car insurance) but just to ensure that you have been given the correct advice and the best advice... At the end of the day every IP should be wearing 2 hats so to speak - they are doing a job for you in that they will draw up a proposal on your behalf to present to your creditors (an offer that you can realistically afford) but they must also be fair to the creditors and ensure they get the best possible return for them.

You cannot be expected to pay £600 per month into an IVA and they only allow you £100 for food & household goods for 2 adults/2 children for example - everything has to fall in line with the guidelines and be realistic.

I would say that all in all the IVA seems the better option Jeddy:

1. IVA - You will pay £628 x 60 months = £37680 and in turn the IP will take over from the Approval date and deal with all creditors on your behalf. They do charge a fee but this is included in the £628 so effectively the creditors are paying this (so to speak) because ...

2. DMP - You will pay £668 x 66 months = £45424 and this is with no guarantee that all creditors will accept it, stop interest & charges and as you've mentioned before not take legal action

So with the IVA - you will pay considerably less, it's guaranteed that interest/charges will be frozen, you will no longer have to deal with creditors (unlike the DMP which can still mean that you will receive calls from the nuisance creditors - usually always the smaller ones ...) and as ADFAX has pointed out - it is highly unlikely that the IVA would go past 5 years.

Also ensure that whatever IVA company you are dealing with do not charge any upfront fees .. all advice should be FREE!

Good Luck!

i_believe_in_angels

:A hello I am new to posting (i have been reading and following the invaluable advice for about 1 year now!) I have recently had an iva approved in dec 09 and pay 250.00 per month.My house is probably valued at £180,000 with an intrest only mortgage for £150,000.Does anyone know if I will have to try to remortgage(how anyone would give me a new mortgage with my credit history is beyond me????)Any advice or past experience would be very welcome xxx
ps reading the posts on here has really really helped keep me going thanks xx

Jeddy_Boy

Charco & Choo Choo,

I was hoping you guys would get involved in this thread! I've read your posts elsewhere and am very grateful for your detailed, thorough and easy to understand advice. It's very much appreciated.

In terms of my mortgage details, I owe £130k on a property currently worth £120k and have a £50k loan secured against the it. As i'm sure you'll agree, I think it's safe to assume that even in year 4 or 5 of an IVA, there is no prospect of any equity being available. Based upon your advice, this leads me to conclude that i'd be looking at an IVA of no longer than 5 years. Box ticked!

As regards my earlier preference for a DMP, this stemmed from an expectation on my behalf that my salary would improve over time thus allowing me to pay more into the DMP per month and thereby reduce the term of the plan. I do recognise however that the IVA offers that certainty in terms of the length of the plan.

I'll take your advice and approach some alternative providers. If you have any recommendations as to whom I could approach who come with a good reputation then i'd be most grateful.

Thanks again you guys - you've helped clarify a great deal.

Jeddy

Charco_2

Sorry Jeddy, it would love it if the property market recovered and boomed so much that you had equity to release in 4 years time... £60k increase!? Think of the values of all our homes! It's simply not going to happen though

I cant imagine that your IVA would be extended to allow for some imaginary equity. My only question would be: are Northern Rock a creditor? In certain circumstances (which i honestly dont think apply to you) they have started to insist on six year IVAs anyway from the outset - obviously they need to have more than 25% of the unsecured debt too!

However in the highly unlikely event that your IVA would be extended for a year ("meteor hitting earth and ending civilisation" unlikey, i'd say) then it would still be your better option over the DMP.

Jeddy_Boy

Charco,

Thanks again and yes I agree - no way of any equity being available! None of my loans/mortgage are with Northern Rock so no worries on that issue.

Do you know of any good sources of information or threads on MSE that list the various Do's & Dont's for people on the verge of putting forward an IVA proposal? I'm obviously keen to ensure the best chances of success in getting my creditors to agree to it and wish to avoid doing anything in the run up to the application that could adversely affect my chances.

On that very subject, I have something of a tricky situation that i'd appreciate some input on. I'll try to be brief! Ok, so i've got two holidays booked (in March and May) for which i've shelled out sizeable (non-refundable) deposits/airfares. These holidays are likely to cost me an additional £1,500 (total, not each). Once in the IVA, there's very little or no prospect of me having the disposable income to afford to take them.

However, I currently have a low interest credit card with a zero balance and £2,500 available credit, part or all of which I can simply transfer to my bank account and keep safe until required for each holiday. By doing this, am I seriously risking the creditor (MBNA) looking unfavourably upon this spending behaviour only a matter of weeks prior to receiving my IVA proposal and therefore refusing to accept the proposal?

I have another credit card with MBNA (balance £2,500). If I were to transfer the £1,500 required for the holidays to my bank account from the zero balance card this would obviously take the total amount owed to them to £4,000. This figure would then represent around 8% of my total unsecured debt - quite a meaty chunk in my opinion. If I lost this percentage level of support for my IVA proposal it clearly wouldn't help.

My head is telling me to do the right thing and sacrifice the holidays for the greater good and give myself the best chance of success with the IVA proposal. My heart is obviously telling me to go for it and take the holidays as a final treat before 5 years of camping holidays in Bognor Regis!

I've checked the holiday details thoroughly and it seems I have no recourse to refund nor any insurance policies in place through which I could reclaim the costs already incurred.

What are your thoughts?

Many thanks,

Jeddy