IVA or Debt Management Plan

Overview of an IVA

Individual Voluntary Agreements (IVAs) were introduced in 1986 as an alternative to bankruptcy. In order to qualify, an individual must have in the region of £12,000 of unsecured debt, and be insolvent (ie income is no longer enough to cover all outgoings). They are a legally binding agreement between Creditors and Debtor whereby an individual will repay affordable monthly repayments, usually for 5 years, and any outstanding credit will be cleared at the end of this period.

Overview of a Debt Management Plan

Debt Management Plans (DMPs) are one of several alternatives to an IVA. Where an individual is struggling to repay debts at the end of the month, DMPs also allow for an affordable monthly repayment to be repaid to the creditors. They are often facilitated by a third party who may charge a fee for their services. A DMP is a far more informal arrangement than an IVA as it is not a legally binding agreement.


While an IVA is considered a flexible alternative to Bankruptcy, there are still some limitations. If an individual in an IVA finds that they are unable to pay the monthly repayments, then the IVA could fail and the creditors may file for Bankruptcy (if there are any difficulties the IVA Supervisor should be consulted immediately). A DMP offers more flexibility as it is a less formal arrangement and it is possible to adjust repayment amounts occasionally to allow for unforeseen circumstances.

Length of Term

A DMP is exactly as it sounds; it is a way to manage debts. It allows for affordable monthly repayments to be made, but as the total debt will still need to be cleared, the length of term could be for many years, even decades. As an IVA has a fixed end date (usually 5 years), provided the repayments are made then the individual will be debt free at the end of that period as any outstanding debt will be cleared.

Contractual obligations

As mentioned, an IVA is a binding agreement whereby if repayments fail, then there is a chance that creditors will file for bankruptcy, however there is a definite end date. Whilst a DMP is not binding as such, this does have its own drawbacks. Because the length of a DMP will vary based on the amount of debt and how much can reasonably be repaid, there is no stipulation for the creditors to freeze interest on the debt, nor reduce monthly repayments. Therefore, with lower monthly repayments, it is possible that the debt may actually increase over time, although this should be monitored by the debt management company and they should advise if the plan is not working.

A DMP is really aimed at those who still have some money left each month after all essential expenses are paid, whereas an IVA is specifically for those who have more than £12,000 of unsecured debt and are insolvent. There is no actual limit to the amount of debt required to 'qualify' for a DMP. Both could affect an individual’s ability to get future credit as they will be noted on the credit record for 6 years. However, while an IVA will be noted in the insolvency register - a public record, a DMP is not.