DMP vs IVA: pros and cons?

Joanna_jinxed

Hi all!

Total forum newbie here. I'm just trying to get my head around the possible options that I have re: managing my debts. My current situation is that I have two unsecured personal loans and 4 credit cards and an overdraft that all together make me just over £25k in debt. I also have a car through a hire purchase scheme with motor point, which is costing me £142.11 a month. The car is a work essential as I travel between work sites nationally, often with bulky medical equipment in tow! I won't make excuses for my terrible debts, they accrued over five years and every month I just seem to be struggling harder and harder. I had my lightbulb moment when I was praying that the last £5 of petrol money I'd managed to scrape together in coppers and change would last me the week until payday. I was on the road home that friday, fuel light flashing, praying I wouldn't break down and have to explain to the RAC man I had run out of petrol! My house is owned outright with my husband as he had an inheritance from a relative shortly before we married, so no mortgage.

I've been on the Stepchange site and they recommended a DMP, but what are the advantages of this vs an IVA? I want to know all the pros and cons before I make a decision. As far as I can see, my credit rating is going to take a beating...but honestly, the last thing I want is more credit at this point! But it looks like with the IVA that once you've completed the term then your credit score can start to recover...whereas with a DMP it can be years from the final payment.

Any help, advice or personal experiences most welcomed.

sourcrates

Good Morning,


Ok, IVA verses DMP.


Lets start with the less formal option, the debt management plan, this is just an informal arrangement between you and your creditors to repay what you owe at a lesser rate than your original contracted payments, this is totally at your creditors discretion, they don't have to stop interest or charges, but in reality, most do, can take a while to complete, no legal protection from creditors, they could, if they wished, still take legal action against you, although if your paying regularly that's unlikely to happen.


An IVA on the other hand is a formal regulated debt solution, its a kind of insolvency, one step down from bankruptcy, having said that, its ideal if you have a lot of debt, you have complete legal protection from your creditors from day one, you make one monthly payment, and have a yearly review of your circumstances.

You must get at least 75% of your creditors, by value of debt, to agree to it, otherwise it wont be passed.
Usually lasts 5 years, but can be extended to 6, as (if a homeowner) you are expected to re-mortgage in year 5, if you cant do this, then sometimes an extra year is added to the arrangement.


Now the time your credit will be affected is up to you really, before you start any debt solution its best to have all your accounts defaulted already, as creditors don't always default you when you start a DMP, so 6 months or so of non payment achieves this goal, then you are ready to start tackling it, and you know that come what may, in 6 years, it will all be gone from your file.

If you choose a DMP, and you don't get your accounts defaulted, then you get the "AP" (arrangement to pay) markers, which stay on your file a further 6 years after completion.


I was £57,000 in debt, and took the IVA option, all in all it was a pretty smooth ride, only contact with my IP was once a year for my annual review, that was it, just made the payments and got on with life, ended in 2014.


You hardly knew you were in an IVA to be honest, very simple and straightforward, I had some issues towards the end, as my income decreased severely, but I offered all payments up to that date as full and final settlement, which was accepted, apart from that, all went well.

fatbelly

This is from stepchange:

1.An IVA is a formal arrangement whereas a DMP is an informal agreement between you and your creditors.
2.An IVA is less flexible than a DMP, although you can still vary your payment up to 15% on an IVA. Any larger variations may have to be referred to your creditors for them to vote on the decision. DMPs are more flexible, and within reason you can change your payments whenever necessary.
3.An IVA will stop all interest and charges. On a DMP there is no guarantee that this will happen and creditors can continue to add them.
4.An IVA has a guaranteed end date. This is usually after 5 years. It can carry on for an extra year, if for example you were required to remortgage and this is no longer an option. Because of potential for interest and charges being levied by creditors, there is no guaranteed end date for a DMP.
5.If you opt for a DMP with a free debt help charity there aren’t any administration fees to pay; with an IVA, there are fees involved.
6.You can administrate a DMP yourself or choose a third party to deal with your creditors on your behalf. On an IVA you must use a licensed Insolvency Practitioner.
7.If you embark on an IVA your IP will check your financial circumstances. A DMP provider would only usually ask for proof of your income and proof of your debts.
8.There’s no official minimum amount of debt for a DMP, although this will depend on your DMP provider and your circumstances. The lower limit for an IVA is usually around £15k.
9.Creditors don’t have to accept a DMP agreement. We usually recommend that you send the payments anyway. For an IVA to go ahead 75% of your creditors (by debt value) have to agree to the proposal.
10.Once an IVA goes ahead, all creditor contact will stop. However on a DMP creditors can continue to chase you for extra payments and can follow the standard debt collection procedure.
11.Every IVA is public information and entered on to the insolvency register. There’s no equivalent for DMPs.
12.Finally, an IVA is a form of insolvency where a percentage of your debt is written off. On a DMP you repay your debts in full.

National_Debtline

Hi Joanna,


All of the advice given so far is great. I would just like to add that if you enter into an IVA and cannot maintain the payments there is a risk that the creditors or your IP can make you bankrupt. If you are declared bankrupt and you are named on a property then that property can be seized as part of a bankruptcy. This is a high risk as the property is owned outright.


IVA payments can only be varied by up to 15% under the IVA Protocol without referring the matter back to your creditors and whilst some breaks can be permitted in an IVA, but they are known for being inflexible.


Your original post doesn't say how much you can afford monthly? This may also play a factor in your decision. If your DMP ran for 6 years (same length of time as an IVA) that would mean paying approx. £350per month, but a DMP can run for up to 10years (meaning you would only have to pay £210per month). Remember, as well, when your car payments finished that money would be expected to be paid into the IVA (an extra £142per month). Hope that helps,


Laura
@natdebtline

DorisTrousers

fatbelly wrote: »

This is from stepchange:

1.An IVA is a formal arrangement whereas a DMP is an informal agreement between you and your creditors.
2.An IVA is less flexible than a DMP, although you can still vary your payment up to 15% on an IVA. Any larger variations may have to be referred to your creditors for them to vote on the decision. DMPs are more flexible, and within reason you can change your payments whenever necessary.
3.An IVA will stop all interest and charges. On a DMP there is no guarantee that this will happen and creditors can continue to add them.
4.An IVA has a guaranteed end date. This is usually after 5 years. It can carry on for an extra year, if for example you were required to remortgage and this is no longer an option. Because of potential for interest and charges being levied by creditors, there is no guaranteed end date for a DMP.
5.If you opt for a DMP with a free debt help charity there aren’t any administration fees to pay; with an IVA, there are fees involved.
6.You can administrate a DMP yourself or choose a third party to deal with your creditors on your behalf. On an IVA you must use a licensed Insolvency Practitioner.
7.If you embark on an IVA your IP will check your financial circumstances. A DMP provider would only usually ask for proof of your income and proof of your debts.
8.There’s no official minimum amount of debt for a DMP, although this will depend on your DMP provider and your circumstances. The lower limit for an IVA is usually around £15k.
9.Creditors don’t have to accept a DMP agreement. We usually recommend that you send the payments anyway. For an IVA to go ahead 75% of your creditors (by debt value) have to agree to the proposal.
10.Once an IVA goes ahead, all creditor contact will stop. However on a DMP creditors can continue to chase you for extra payments and can follow the standard debt collection procedure.
11.Every IVA is public information and entered on to the insolvency register. There’s no equivalent for DMPs.
12.Finally, an IVA is a form of insolvency where a percentage of your debt is written off. On a DMP you repay your debts in full.

Quite a succinct and straightforward list at first glance there. However, what this list doesn't say is probably just as important, if not more so, than what it does say. A few thoughts:

1. A DMP cannot deal with priority creditors, e.g. Council Tax arrears, whereas an IVA can.
2. A DMP CAN be more flexible, but you will be expected to provide proof, e.g. wage slips, benefit letters etc. You cannot just pick and choose a payment.
3. On a DMP, creditors can pursue further recovery action. CCJ's are not uncommon, and this can go further, charging orders, statutory demands and even Bankruptcy. On an IVA, they cannot.
4. FCA guidelines suggest that no provider, free or otherwise, should offer DMP's for a longer period than 10 years without very good reason. This ties in with point 2, if a reduction in payment (unless obviously temporary) in a DMP leads to a longer timescale than 10 years then a DMP may no longer be appropriate.
8. The £15k figure is arbitrary and may refer to SC policy only, there is no legal minimum in law. Some providers, if IVA is appropriate, will look at much lesser figures than that.
9. Correct, but that also means that if a dissenting creditor holds less than 25% of the vote then they can be forced to accept IVA even though they may not want to. Especially useful re points 1 and 3.

I would also have added a point 13.

IVA's have further clauses, such as annual review, windfalls and inheritances, PPI, commission bonus and overtime (if applicable). You must comply with these or you could be in breach of the T's and C's of an IVA. DMP's do not. However, even for free providers, the FCA have now categorically said that should a client not co-operate with a review as scheduled, then, provided they have had proper notification, the DMP file should be closed and no further assistance given unless and until said client re-engages. SC, and I believe, Payplan, have recently altered their own T's and C's to reflect this. All that said, of course, if a client self manages a DMP then there is of course less of the above to factor in to any decision.

This is not meant to be pro or anti either solution, more a slightly more expansive description.

Vikipollard

Have you actually defaulted on any payments, or are you teetering on the edge?

Also, is your husband aware of the situation, and can a paring to the bone of your budget get you where you want to be via snowballing?

Specifically about an IVA
I think the biggest worry for me (for you) is your property if you go for an IVA.

What happens when you are forced to (at least try to) obtain a secured loan against it in the last year? You own your property outright which *may* make you a more attractive proposition for an eye-watering rate. Even based on a £90,000 property, your debt is <30% LTV.

I did an IVA which lasted 6 years because I wasn't - and fortunately had never been - on the mortgage, and we'd only been married for a year. It was the right thing for me (no one even offered DMP as a choice) as the house was safe and they couldn't force a remortgage.