IVA : The Pros And Cons Of IVAs vs Debt Management Programmes

To help you decide which of the debt solutions you prefer, here are the main Pros and Cons of each choice.

There are essentially two types of Debt Management Programmes.

Both are considered ‘informal’ arrangements.

The first type is a ’self help’ Debt Management Programme.

This is where a person contacts all their creditors under their own steam to explain they are experiencing financial problems, then agrees a new monthly repayment directly with each creditor.

This can be a very stressful exercise, made all the more difficult as the number of creditors you have rises. However, there is the benefit of not having to pay any fees, as you are undertaking the work for yourself. This in turn means your creditors will receive all the money you have available and should ensure the repayment period of the programme is kept to a minimum.

The second type of informal agreement is a Commercial Debt Management Programme.

Under this programme a person instructs a Debt Management Company (DMC) to act on their behalf. They provide their personal details, including a full list of creditors and an accurate financial statement and agree to make monthly payments to the Debt Management Company. The DMC in turn contacts their creditors and distributes the payments to them on their client’s behalf.

Unfortunately, this service isn’t free and a management fee would normally deducted from the amount that a client can afford to pay each month, usually somewhere between 15% to 20%.

This has the effect of reducing the amount of money the creditor receive each month, which also has the effect of lengthening the time it will take for the debts to be fully repaid.

It is also not unusual for a Debt Management Company to charge a ’set-up’ fee. The amount varies considerably from company to company but you should expect a fee in the region the first two monthly payments. This, unfortunately, has the effect of forcing a new client to miss two months payments to their creditors, putting them into arrears on their accounts and into default positions.

Both types of Debt Management Programmes have valid roles as debt solutions, but deciding which option is preferable will be down to the individual concerned.

But, because the Debt Management Programmes are informal agreements there are other issues that should be considered too:

  1. There will be a full repayment of the debts.
  2. The creditors will not guarantee to freeze the interest on the debts.
  3. Creditors can reject lower repayments and can still take legal action if they wish.
  4. The applicant’s credit file will be seriously effected when their accounts fall into default.


An alternative to the informal solutions above is a formal arrangement and it’s called an IVA.

An IVA (or individual voluntary arrangement to give it its full name) is a solution that offers a person with debts over £12,000 a realistic alternative to the two informal arrangements above.

An IVA is know as a formal agreement because it is a legally binding, court approved arrangement, governed by the Insolvency Act of 1986.

Whilst this may initially sound pretty imposing, it really only means that once an IVA has been agreed by the necessary majority, neither party can make changes midway through without the consent of the majority.

This, in turn, gives the applicant substantial legal protection from unhappy creditors who may otherwise have wanted to take legal action to enforce the debt.

Here are some of the main points that an IVA provides :

  1. An IVA acts as an alternative to bankruptcy and therefore protects the applicant’s assets from creditors
  2. IVA repayments are set to an affordable level.
  3. There is a fixed time period for the repayments, which are normally 5 years.
  4. An IVA protects the applicant from legal actions.
  5. Any debt not repaid during the IVA, the creditor are legally obliged to write off.
  6. IVA’s provide a suitable alternative for people whose professional activity might be restricted under a bankruptcy petition.

The purpose of the Individual Voluntary Arrangement (IVA) is to bridge the gap between Bankruptcy and solvency. It does this by offering the applicant legal protection from creditors, whilst allowing them opportunity to repay only what they can honestly and realistically afford.

It must be said that an IVA is not an easy option but, in the correct circumstances, it’s a very powerful solution.

To discuss the IVA option with one of our specialist IVA advisers call 0800 088 7503.

For further information on IVA’s vs Debt Management Programmes, take a look at our free guides which are packed with useful tips and advice.

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