IVA vs DMP - Formal vs Informal Debt Solutions

IVA vs DMP: Which Debt Solution is Right for You?

IVAs and Debt Management Plans (DMPs) are both ways to repay your debts through affordable monthly payments. However, one is legally binding (IVA) and the other is informal (DMP). Understanding the differences is crucial.

Quick Comparison Table

Factor	IVA	DMP
Legal Status	Legally binding	Informal arrangement
Debt Write-Off	Yes (after 5-6 years)	No (pay in full)
Duration	Fixed: 5-6 years	Variable (until paid in full)
Creditor Protection	Yes (legal protection)	No (goodwill only)
Cost	£5,000-£8,000 in fees	£0-£2,100 (may be free)
Interest/Charges	Frozen by law	Frozen if creditors agree
Can Creditors Refuse?	Need 75% approval initially	Can refuse participation
Can Creditors Change Mind?	No (bound by agreement)	Yes (can demand more/sue)
Monthly Payment Changes	Annual reviews only	Can change anytime
Minimum Debt	£6,000+	Any amount
Credit Impact	6 years on credit file	While active + 6 years
Public Record	Yes (Insolvency Register)	No
Setup Required	Licensed IP required	Can DIY or use debt charity
Flexibility	Low (legally bound)	High (can change or cancel)
Creditor Contact	Stopped	May continue

What is a Debt Management Plan (DMP)?

A DMP is an informal arrangement where you make reduced monthly payments to your creditors based on what you can afford.

Key features:

Not legally binding
Creditors can refuse to participate
Debts repaid in full (no write-off)
Can be free through charities
Flexible - can change or cancel
No legal protection

Detailed Comparison

1. Legal Status

IVA - Legally Binding

Once approved:

Legally binding contract
Creditors bound by agreement
Cannot pursue you
Cannot add interest/charges
Cannot take legal action
Must accept the terms

Protection: Full legal protection from day one

Commitment: Cannot easily cancel or change

DMP - Informal Agreement

No legal force:

Based on creditor goodwill
Creditors can refuse to participate
Creditors can withdraw at any time
Can continue adding interest (if they choose)
Can still pursue legal action
No obligation to accept reduced payments

Protection: None - relies on creditor cooperation

Commitment: Can cancel or change anytime

KEY DIFFERENCE: IVA provides legal protection; DMP relies on creditor goodwill

2. Debt Write-Off

IVA Debt Write-Off

After completion (5-6 years):

Remaining qualifying debt written off
Typically 60-70% of original debt forgiven
Legally discharged from debts
Completion certificate issued

Example:

Original debt: £30,000
Paid over 5 years: £12,000 (including fees)
Written off: £18,000 ✅

DMP No Write-Off

Must pay in full:

No debt written off
Pay 100% of debt (plus any interest not frozen)
May take 5-15+ years to complete
No completion certificate (just paid off)

Example:

Original debt: £30,000
Must pay: Full £30,000
Plus interest if not frozen
Written off: £0 ❌

KEY DIFFERENCE: IVA writes off remaining debt; DMP requires full repayment

3. Duration

IVA Duration

Fixed term: 60-72 months (5-6 years)

Certainty:

Know exact end date
Cannot extend beyond 72 months (unless modification)
Complete on schedule if payments maintained

Example:

Debt: £25,000
Payment: £200/month
IVA term: 60 months
End date: Known from day one
Debt at end: Remaining written off

DMP Duration

Variable term: Until debt paid in full

Uncertainty:

Length depends on payment amount
Could be 3 years or 20+ years
Can extend if payments reduced
No guaranteed end date

Example:

Debt: £25,000
Payment: £200/month
If interest frozen: 125 months (10.4 years)
If 10% APR continues: 191 months (15.9 years)
End date: Unknown, varies with interest

KEY DIFFERENCE: IVA is 5-6 years fixed; DMP length varies greatly

4. Interest and Charges

IVA Interest

Frozen by law:

All interest stopped from approval
No additional charges
Debt amount fixed
Cannot increase

Protection: Guaranteed by law

Example:

Debt at start: £20,000
After 5 years: Still £20,000 (what you haven't repaid)
Interest added: £0 ✅

DMP Interest

Depends on creditor agreement:

Most creditors freeze interest IF you ask
Some may refuse
Can restart interest if they choose
No legal requirement

Protection: None - reliant on creditor goodwill

Example - Interest Frozen:

Debt at start: £20,000
After 5 years: £20,000 minus payments
Interest added: £0 ✅ (if agreed)

Example - Interest Continues:

Debt at start: £20,000 at 18% APR
After 5 years: £20,000 + interest - payments
Interest added: £1000s ❌ (much longer to repay)

KEY DIFFERENCE: IVA guarantees interest freeze; DMP interest freeze is voluntary

5. Cost Comparison

IVA Costs

Total typical cost: £5,000-£8,000

Fees:

Nominee fee: £1,000-£2,000
Supervisor fee: 15-20% of each payment
Built into payments (not extra)

Example:

Monthly payment: £200
Over 60 months: £12,000
Fees: £3,000 (25%)
To creditors: £9,000 (75%)

Upfront: £0

DMP Costs

Free DMPs (many options):

StepChange: Free
National Debtline: Free
PayPlan: Free
Christians Against Poverty: Free

Paid DMPs:

Setup fee: £0-£50
Monthly fee: £25-£35
Over 60 months: £1,500-£2,100

Example - Free DMP:

Monthly payment: £200
Over 60 months: £12,000
Fees: £0
To creditors: £12,000 (100%)

Example - Paid DMP:

Monthly payment: £200
Fee: £30/month
To creditors: £170/month
Over 60 months: £10,200 to creditors, £1,800 fees

Upfront: Usually £0

KEY DIFFERENCE: Free DMPs are cheaper than IVAs, but DMPs don't write off debt

6. Value Comparison

IVA Value

Total benefit:

Original debt: £30,000
IVA payments: £12,000 (inc. £3,000 fees)
To creditors: £9,000
Debt written off: £21,000
Net benefit: £18,000 debt relief (after fees)

Value: Pay less than owed, debt written off

DMP Value

Total cost:

Original debt: £30,000
DMP payments: £30,000 (no write-off)
Fees: £0-£2,100
To creditors: £30,000 (or £27,900 if paid DMP)
Debt written off: £0
Net benefit: £0 debt relief (pay in full)

Value: Pay everything owed

KEY DIFFERENCE: IVA writes off substantial debt; DMP pays in full

7. Creditor Cooperation

IVA Creditor Involvement

Initial approval: Must get 75% of creditors (by value) to approve

After approval:

All creditors bound (even those who voted no)
Cannot refuse participation
Cannot demand more
Cannot take legal action
Must accept terms

Guarantee: Once approved, locked in

DMP Creditor Involvement

Initial setup: Ask creditors to participate

Ongoing:

Each creditor chooses whether to participate
Can withdraw participation anytime
Can refuse reduced payments
Can demand full payment
Can take legal action
Can add charges

No guarantee: Relies on goodwill throughout

KEY DIFFERENCE: IVA locks creditors in; DMP creditors can withdraw

8. Flexibility

IVA Flexibility

Low flexibility:

Fixed monthly payment
Can only change at annual review
Need IP approval for changes
Cannot cancel easily
Cancellation = failure (fees kept, no debt written off)

Benefits of rigidity:

Structured approach
Forces discipline
Clear end goal

DMP Flexibility

High flexibility:

Can increase payments anytime
Can reduce payments if circumstances change
Can take payment breaks
Can cancel with no penalty
Can switch to another solution
Can pay off early

Benefits of flexibility:

Adapts to life changes
No penalty for improvement
Can cancel if circumstances improve

KEY DIFFERENCE: IVA is rigid; DMP is flexible

9. Credit Impact

IVA Credit Impact

On credit file: 6 years from start date

Severity: Severe negative impact

Accounts marked: "Arrangement to pay" or "IVA"

Public record: Yes (Insolvency Register)

Timeline:

Years 1-6: IVA on file
Year 6: Removed
Years 6-8: Recovery
Years 8+: Normalizing

DMP Credit Impact

On credit file: While active + 6 years after each account settled

Severity: Moderate to severe negative impact

Accounts marked: "Arrangement to pay" or "default" (if missed payments before DMP)

Public record: No

Timeline:

Years 1-X: DMP active, "arrangement" on file
Year cleared: Start of 6-year clock
6 years after cleared: Removed

Potential longer impact: If DMP takes 10 years, then +6 years = 16 years total credit impact

BOTH DAMAGE CREDIT: IVA is 6 years fixed; DMP potentially longer

10. Minimum Debt

IVA Minimum Debt

Typical minimum: £6,000

Why:

Fees make smaller IVAs uneconomical
Below £6,000, fees could be 50%+ of payments
Not cost-effective

Example - Too small:

Debt: £4,000
IVA fees: £2,000
To creditors: £2,000
Written off: £2,000
Not worth it ❌

DMP Minimum Debt

No minimum: Any amount

Suitable for:

£1,000+
£5,000+
£10,000+
Any debt amount

Example - Small debt OK:

Debt: £4,000
DMP fees: £0 (free DMP)
To creditors: £4,000
Repays in full ✅

KEY DIFFERENCE: DMPs suitable for smaller debts; IVAs need £6,000+

11. When Creditors Don't Cooperate

IVA Non-Cooperation

Before approval:

If less than 75% approve, IVA rejected
Can modify proposal and try again
Or try different solution

After approval:

All creditors bound
Cannot refuse to cooperate
Have no choice

DMP Non-Cooperation

Anytime:

Creditors can refuse to participate
Can withdraw cooperation
Can demand full payment
Can take legal action
Can add interest

Common issues:

Some creditors continue calling
Some refuse reduced payments
Some issue CCJs
Some use debt collectors

No protection if creditors don't cooperate

KEY DIFFERENCE: IVA forces cooperation; DMP doesn't

12. Best Suited For

IVA Best For

✅ Choose IVA if:

Debts of £6,000+
Want debt write-off
Need legal creditor protection
Creditors are aggressive
Have regular income (£80-100+ disposable)
Can commit to 5-6 years
Don't mind credit impact
Want guaranteed end date
Need interest frozen legally

Example IVA candidate:

Debt: £22,000
Income: £1,800/month
Disposable: £200/month
Creditors threatening court
Wants debt written off
IVA perfect fit ✅

DMP Best For

✅ Choose DMP if:

Debts of any amount
Want to repay in full (morally prefer this)
Want flexibility
Want free solution
Need to cancel easily if circumstances improve
Creditors are cooperative
Want to avoid insolvency record
Short-term financial difficulty
Expecting situation to improve

Example DMP candidate:

Debt: £8,000
Income: £1,500/month
Disposable: £150/month
Temporary income reduction
Expects payrise in 2 years
DMP suitable ✅

Detailed Scenarios

Scenario 1: Large Debt, Stable Income

Profile:

Debt: £35,000
Income: £2,200/month
Disposable: £300/month
Creditors: Calling daily

DMP outcome:

Monthly payment: £300
Duration: 116 months (9.7 years) if interest frozen
Longer if interest not frozen
Total paid: £35,000
Debt written off: £0

IVA outcome:

Monthly payment: £300
Duration: 60 months (5 years)
Total paid: £18,000
Debt written off: £17,000 ✅
Protected from creditors

Better choice: IVA (saves £17,000 and 4.7 years)

Scenario 2: Small Debt, Temporary Issue

Profile:

Debt: £6,500
Income: Usually £2,000/month (currently £1,600 due to reduced hours)
Disposable: £100/month
Expects income to return to normal in 6-12 months

DMP outcome:

Monthly payment: £100/month
Duration: 65 months (5.4 years) if interest frozen
Total paid: £6,500
Can increase payments when income recovers
Can pay off early
No fees if free DMP

IVA outcome:

Monthly payment: £100/month
Duration: 60 months (5 years) fixed
Total paid: £6,000 (inc. fees £1,500)
To creditors: £4,500
Written off: £2,000
But stuck with low payment even when income recovers

Better choice: DMP (more flexible, can pay off early when income improves)

Scenario 3: Moderate Debt, Aggressive Creditors

Profile:

Debt: £18,000
Income: £1,700/month
Disposable: £150/month
CCJs issued, bailiff threats

DMP outcome:

Monthly payment: £150
Duration: 120 months (10 years)
No legal protection
Creditors can still sue
CCJs continue
Bailiffs may still visit

IVA outcome:

Monthly payment: £150
Duration: 60 months (5 years)
Legal protection from creditors ✅
CCJs stopped ✅
Bailiff action stopped ✅
Debt written off: ~£9,000

Better choice: IVA (need legal protection)

Pros and Cons Summary

IVA Advantages Over DMP

✅ Debt written off (typically 60-70%)
✅ Legal creditor protection
✅ Interest frozen by law
✅ Fixed duration (5-6 years)
✅ Creditors bound after approval
✅ Stops legal action
✅ One payment to IP who distributes
✅ Guaranteed end date

IVA Disadvantages vs DMP

❌ Expensive fees (£5,000-£8,000)
❌ Inflexible (cannot easily change/cancel)
❌ Public record (Insolvency Register)
❌ Minimum debt (£6,000+)
❌ Requires creditor approval (initially)
❌ Annual reviews required
❌ Restrictions on credit/borrowing
❌ Severe credit impact (though DMP also bad)

DMP Advantages Over IVA

✅ Often free (via charities)
✅ Very flexible (change/cancel anytime)
✅ No minimum debt
✅ Not public record
✅ Can pay off early (no penalty)
✅ Can increase payments anytime
✅ DIY option available
✅ Less formal

DMP Disadvantages vs IVA

❌ No debt write-off (pay 100%)
❌ No legal protection
❌ Interest freeze optional (creditors choose)
❌ Creditors can withdraw
❌ Can still be sued
❌ Potentially longer duration
❌ No guaranteed outcome
❌ Creditors may not cooperate

Common Questions

Q: Can I switch from DMP to IVA?
A: Yes, anytime. Payments made under DMP count toward debt but won't be refunded.

Q: Can I switch from IVA to DMP?
A: Only if IVA fails. You lose all fees paid and debt isn't written off. Don't recommend.

Q: Which is better for credit score?
A: Both damage credit severely. IVA impact is 6 years fixed. DMP could be longer if takes many years to repay.

Q: Can I get a mortgage after IVA vs DMP?
A: Similar difficulty for 3-4 years. IVA removed after 6 years; DMP depends on repayment length.

Q: Do I need a debt charity for DMP or can I DIY?
A: You can DIY by contacting creditors yourself and arranging reduced payments. Debt charities help with negotiations and distribution but not required.

Q: Will creditors always accept a DMP?
A: No. Some creditors refuse reduced payments, especially if they think you can afford more. No legal requirement to participate.

Q: If my DMP creditors keep adding interest, should I switch to IVA?
A: Possibly. If interest makes DMP unworkable and you qualify for IVA, it may be better (interest frozen by law).

Q: Can I have both IVA and DMP?
A: No. You choose one solution for all your qualifying debts.

Q: Which is more likely to be approved - IVA or DMP?
A: DMPs don't need approval (you just start). IVAs need 75% creditor approval, but properly prepared proposals usually succeed.

Decision Framework

Choose IVA If:

✅ Debts £6,000+
✅ Want/need debt write-off
✅ Need legal creditor protection
✅ Creditors are aggressive/suing
✅ Want guaranteed interest freeze
✅ Want fixed end date
✅ Can commit to 5-6 years
✅ Can afford £80-100+/month

Choose DMP If:

✅ Want to repay debts in full
✅ Need flexibility
✅ Want free/cheap solution
✅ Might improve financially soon
✅ Debt any amount (especially under £6,000)
✅ Creditors are cooperative
✅ Want to avoid insolvency
✅ Short-term cash flow issue

Consider Other Solutions If:

⚠️ No disposable income → DRO or Bankruptcy
⚠️ High assets + low income → Full & Final Settlement
⚠️ Debt under £30k + low income → DRO
⚠️ Temporary issue → Payment holiday from creditors

Next Steps

To Explore IVA

To Explore DMP

Contact free debt charities:
- StepChange: 0800 138 1111
- National Debtline: 0808 808 4000
- PayPlan: 0800 280 2816
Calculate how long repayment takes
Check if creditors likely to cooperate
Consider if full repayment is realistic

Still Unsure?

Use our Debt Solution Comparator to see which suits your situation best.

Key Takeaway: Choose IVA for debt write-off and legal protection. Choose DMP for flexibility and full repayment. Your circumstances determine which is right.

Compare All Solutions | IVA vs Bankruptcy | IVA vs DRO