Individual Voluntary Arrangements:
Trying to deal with crushing debt can be depressing. You have creditors lined up outside the door, sending you mail, calling up at all odd hours and even harassing you at your office. You cannot really blame lenders as they are just trying to recover what they have lent you. As a borrower, you should not let this situation remain as it is. Get in touch with an insolvency expert as soon as possible. However, even with the help of an insolvency expert, you may be a little confused. Is an IVA or an individual voluntary arrangement really right for you? Or should you get a DMP or a Debt Management Plan? Which option would be better?
You are right to ask these questions as both options are ways to resolve your insolvency situation. However, there are critical differences between an I.V.A and a DMP. To help you out, we've listed a few features that you should know about. These features will also help you make an informed decision about your debt management.
1. An I.V.A is a formal arrangement between you and your creditors and a supervisor or a nominee manages it. The agreement is legally binding on all parties. A DMP, on the other hand, is an informal agreement between you and your creditors.
2. An I.V.A is very exact on its terms of repayment and the period of repayment. However, you can still manage to postpone payments, vary your payments by 15%, or extend the repayment period. DMPs are extremely flexible and you can make payments according to your financial situation and you can also change payment amounts. This may sound attractive but I.V.As are limited to five years only and DMPs are not. As a result, you may have to continue paying for a DMP for more than five years and this may technically put you back in debt. In short, there is no end date for a DMP.
3. Creditors do not have to accept a DMP but most creditors do accept an I.V.A. This is because an I.V.A guarantees that they will recover at least 50% of their loan amount.
4. Once an I.V.A starts, creditors have to stop all private recovery procedures. However, a DMP does not have such restrictions and creditors may follow all standard debt collection measures in an effort to recover additional payments.
5. An I.V.A is legally binding and creditors cannot change the format of the agreement or the repayment plan. DMPs are not subject to these rules and regulations and creditors may change payment amounts, payment times and even payment dates.
6. In an I.V.A, an insolvency practitioner will assess your income and your monthly budget. He will then compare to how much you have to pay and plan a repayment process. For more creditors, he will plan to payback at least 50% of the borrower amount. This is not the same in a DMP. In a DMP all debt is repaid and you may have to pay back interest and other charges as well.
7. An I.V.A will stop any potential legal action. In a DMP, creditors are free to pursue legal action in case payments are delayed.
8. With an I.V.A, you have the option of removing the IVA from your credit history in the future. However, this may not be allowed with a DMP. As you are paying off your loans slowly and under default, this may be registered on your credit history.
As you can see, an I.V.A seems to be much better than a DMP. However, an insolvency expert is the only person who can assess your situation and recommend the right plan for your particular case. We recommend you get in touch with a financial expert right away and do your best to get back on your financial feet.