Individual Voluntary Arrangements Vs. Debt Management Plans

For one reason or another, we can find ourselves in difficult financial situations. With debts mounting up, interest accruing and increasingly demanding calls or letters from creditors, it can be a very stressful time.

While it can feel like a natural response to try to hide from the problems in the hope they’ll go away, this almost never ends positively. Taking the decision to try to improve matters is a good first step, seeking appropriate help an even better second one. But which help will you choose?

Debt Management Plans

You may well see advertisements on TV, the internet, in newspapers, or magazines placed by debt management companies with attractive headlines offering to help you consolidate your debts into a single monthly payment in order to make them more affordable. This usually involves paying an agreed amount of money to the debt management firm with them distributing this money amongst your creditors after they have deducted their fees. The company will negotiate with the creditors in an attempt to get better credit or payment terms. Such companies are regulated by the Financial Conduct Authority and it can seem an attractive proposition to engage such companies.

Individual Voluntary Arrangements (IVA’s)

On the face of it, an individual voluntary arrangement might seem similar to a Debt Management Plan. Instead of a debt management company making the arrangements with you and your creditors, it’s an insolvency practitioner however, there are several important differences.

A debt management company can attempt to negotiate with creditors but they can refuse to budge from the existing credit terms. With an IVA, if 75% of the creditors agree to more manageable terms, then the other 25% are forced to do so as well, even if they don’t want to.

Debt management plans aren’t legally enforceable, so if creditors don’t take part in the process, or decide later that they no longer wish to be paid via the debt management company, they’re free to pursue the debtor. With IVA’s, however it’s a statutory process and as such has the full backing of the law behind decisions made. Importantly, once an IVA has been established, creditors can no longer pursue you.

IVA’s normally last for five years, during which time interest on unsecured debts is frozen and it’s typical for some of the debt to be completely written off. This can give the debtor a relatively fresh start at the end of the process. With Debt Management Plans however, none of this is guaranteed and instead, the cessation (or not) of interest, the writing off (or not) of part of the debts owed and the cooperation (or not) of your creditors are entirely down to the negotiation skills of the debt management company and the willingness of those owed money to participate.

What’s the right solution?

There is no perfect solution for everyone, but doing nothing is usually the wrong solution. We offer a free impartial consultation for individuals struggling with their financial obligations. Before you make a decision, it’s best to do so in full possession of the facts so that you can move forwards with confidence and look forward to a future free from financial worry.

Speak to us, feel better!