IVA vs. DMP? Specific circumstances

startingadmp

Hi all,

I have a specific question about pros and cons of an IVA or a DMP.

Basically, I have debts amounting to 35k and have calculated affordable repayments of around £400 per month. Editing figures via StepChange, it seems like I'm on the cusp of them suggesting a DMP vs. suggesting an IVA.

However, I often have the opportunity of earning freelance income (on evenings/weekends) alongside my full time, salaried job. This can be anything from an additional £250 to £1,500 monthly, depending on how much of my free time I want to spend on these projects. Just for context, I earn just over 2.1k per month after tax in my full time job, so this freelance work can be quite sizeable. Importantly, none of this is guaranteed - some months, there may be no demand at all.

Given this situation, what is a better option - a DMP or an IVA? And how would it work with regards to each one?

foxy-stoat

It doesn't sound like you are in enough debt for an IVA - £400 x 60 = £24,000

You will pay at least 50% of your additional income into the IVA at no financial benefit to you unless you managed to repay 100% of your debt before the end of the year 5.

Do you own your home or renting?

fatbelly

In fact your situation suits a Debt Management Plan well.

You set it up as £400 per month for seven and a bit years, then save your extra income into a fighting find. Around the halfway point, you offer to settle the debts by full & final settlement. The percentage will be set by negotiation but most will settle at below 100% even for a relatively short dmp.

mwarby

Also remember in an IVA to end it early you need to have repaid 100% of debt and IVA fees (couple of thousand I'd guess) and possibly statutory interest

If you ever wanted a mortgage a DMP is likely to be looked on more favorably (but may also take longer to drop off files, as you might not default for a while)

MovingForwards

mwarby wrote: »

If you ever wanted a mortgage a DMP is likely to be looked on more favorably (but may also take longer to drop off files, as you might not default for a while)

Depends on the lender.

However, it is possible to get a mortgage whilst on a DMP, subject to it being in place for 12 months and all payments being made as per the DMP agreement.

Stop the DMP to self-manage, even if maintaining the same payments as in the DMP, is deemed as a failed DMP according to some lenders and 12 months after the last DMP payment a mortgage can be applied for.

After your DMP has finished you may need to wait 12 months, depending on the lender.

Some lenders deem a DMP to be the same as an IVA.

All will require an adverse credit broker / mortgage.

PrettyKittyKat

At £400 over 6 years that is £24k. Given that you could earn substantially more each month freelance if there is demand I think a DMP would be best for at the moment. Maybe spend a year on a DMP trying to earn your freelance money and see how much you can save and if you can offer some f&f settlements as fatbelly says?

If you find after a year that actually the freelance money isn't available or you are struggling with the self-discipline to say the money then you can consider an IVA at the later stage. Due to the commitment, fees and impact of an IVA you need to be 100% certain it is right for you before you do it.

fatbelly

PrettyKittyKat wrote: »

At £400 over 6 years that is £24k. Given that you could earn substantially more each month freelance if there is demand I think a DMP would be best for at the moment. Maybe spend a year on a DMP trying to earn your freelance money and see how much you can save and if you can offer some f&f settlements as fatbelly says?

If you find after a year that actually the freelance money isn't available or you are struggling with the self-discipline to say the money then you can consider an IVA at the later stage. Due to the commitment, fees and impact of an IVA you need to be 100% certain it is right for you before you do it.

I was going to just hit the thanks button but that last sentence is worth re-emphasising.

I see clients (at CAB) every week who have gone into an IVA without understanding them and have had to pull out. They have typically already paid substantial sums but the creditors have seen next to nothing. They still have their debts and now have an insolvency mark for 6 years. It's still a poorly regulated area.