There are a variety of debt solutions available when you have unsecured debt. In this guide, we’ll cover two of the most popular, how they compare and whether they are suitable for you.
What is an IVA (Individual Voluntary Arrangement)?
An Individual Voluntary Arrangement (IVA) is a debt solution that allows you to “freeze” your debt and agree to pay it back over a specified period, usually 5-6 years whilst protecting your assets. Any money you owe thereafter is written off.
An IVA is a legally binding agreement between you and your unsecured creditors, arranged and supervised by a licensed Insolvency Practitioner (IP). In short, you agree to pay back the maximum you can afford over a specified period of time, at the end of which period your creditors agree to write off any remaining balances.
You can read more about IVAs here.
What is a DRO (Debt Relief Order)?
A debt relief order (DRO) is a way to have your debts written off if you have a relatively low level of debt and have few assets. A DRO is only available to individuals who have very little disposable income available to pay to their creditors, have few or no assets, and have a limited level of debt.
Eligibility:
- Not own your home
- Have less than £50,000 in total debts
- Have less than £75 per month in disposable income
You can read more about DROs here.
How Will Each Solution Affect My Credit File?
Both debt solutions will affect your credit file for six years from the date your solution is approved.
What’s The Difference Between a DRO & IVA?
Fees
- IVA: There are fees to pay when you enter an IVA. Those fees are paid out of the affordable monthly payments you agree to. It’s not a payment on top of the payment.
- DRO: There’s no fee to pay, it’s free.
Creditor Contact
- IVA: Lenders cannot chase you for payment or take legal action.
- DRO: Lenders cannot chase you for payment or take legal action.
Interest & Charges
- IVA: Interest and charges on your debts will be frozen.
- DRO: Interest and charges on your debts will be frozen during the 12 month period your DRO lasts for. If your money situation gets better during the 12 month period, you may be asked to pay back your debts and they can add the interest and charges to your balance. If your situation doesn’t improve, your debts will be written off.
Duration
- IVA: An IVA usually lasts five or six years depending on your situation.
- DRO: A DRO lasts for 12 months.
Debt Write Off
- IVA: Once your IVA is complete, any outstanding unsecured debt included in your IVA is written off.
- DRO: Your debts will be written off after 12 months.
Car
- IVA: You will typically be allowed to keep your car as long as it’s not deemed to be too valuable.
- DRO: You’ll be allowed to keep your car as long as it’s worth less than £4,000.
Homeowners
- IVA: You won’t be forced to sell your home if you enter an IVA. But they may ask you to remortgage to release money so it can go towards your debts.
- DRO: You cannot get a DRO if you’re a homeowner.
Public Register
- IVA: If you enter an IVA, your details will be recorded on the public insolvency register, and stay there until three months after your IVA ends.
- DRO: If you enter a DRO, your details will be recorded on the public insolvency register, and stay there until three months after your DRO ends.
Am I Eligible for an IVA or DRO?
It depends on your personal circumstances. The best way to understand your options and see what debt solutions you qualify for is to get debt advice. You can use our online debt advice tool anytime, day or night. Or if you’d prefer, you can speak to the friendly and experienced debt advisors at Angel Advance to receive free, confidential debt advice. You can also contact our team via email, phone or WhatsApp today.
