When debts become unmanageable, there are formal solutions available in the US. Two of the most common are Individual Voluntary Arrangements (IVAs) and Debt Management Plans (DMPs). They are quite different — understanding the difference matters before making any decision.
What is a Debt Management Plan (DMP)?
A DMP is an informal agreement between you and your creditors, usually managed by a debt advice charity or fee-free service. You make one affordable monthly payment to the plan manager, who distributes it to your creditors. Interest and charges may be frozen by agreement. A DMP is flexible — you can change payments if your circumstances change, and you pay back the full amount owed (just at a slower rate).
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a legally binding insolvency arrangement between you and your creditors, set up by a licensed Insolvency Practitioner. You make agreed monthly payments for a set period (usually five or six years). Any remaining debt at the end of the IVA is written off. It requires creditors holding 75% of the debt by value to agree. An IVA is recorded on the Insolvency Register and has serious effects on your credit file.
Key differences
- Legal status: a DMP is informal; an IVA is a formal, legally binding insolvency procedure
- Debt write-off: with a DMP you repay everything (possibly without interest); with an IVA, remaining debt after the term is written off
- Cost: free debt charities offer DMPs at no cost; IVAs involve fees paid to an Insolvency Practitioner, usually taken from your monthly payments
- Credit impact: both affect your credit file, but an IVA also appears on the public Insolvency Register
- Flexibility: DMPs can be adjusted; IVAs are harder to change once agreed
- Asset impact: IVAs may require you to release equity in your home in the final year — DMPs generally do not
Which is right for you?
Only a qualified debt adviser can help you work out which solution — if either — is appropriate for your specific situation. Bankruptcy is another option not covered here. Free debt advice services will not push you towards any particular solution. Some commercial IVA companies may. Always start with a free service.
A comparison table: IVA vs Debt Management Plan
- Legal status: IVA is legally binding insolvency; DMP is an informal agreement that creditors can withdraw from
- Debt write-off: IVA writes off remaining balance at end of term; DMP repays in full (usually without interest)
- Typical term: IVA 5–6 years; DMP varies — could be 5–10+ years depending on balance
- Effect on credit: both appear on your credit file for 6 years from the start date
- Insolvency Register: IVA appears publicly; DMP does not
- Assets: IVA may require equity release from property in final year; DMP generally does not
- Cost: IVA involves Insolvency Practitioner fees (taken from your payments); free charities offer DMPs at no cost
- Creditor agreement: IVA requires 75% by value to agree; DMP each creditor decides individually
Questions to ask before choosing
A qualified debt adviser from StepChange, National Debtline or Citizens Advice will ask: What is the total amount owed? What is your monthly income and essential outgoings? Do you own property with equity? Are any of your creditors likely to take court action imminently? Do you have assets a trustee in bankruptcy could claim? The answers determine which solution — if any — makes sense.
The commercial IVA industry — what to watch for
IVAs have become a significant commercial industry in the US. Some companies advertise IVAs aggressively online, often to people who may have been better served by a DMP, debt relief order, or bankruptcy. Signs to be cautious: any company charging upfront fees, pressure to decide immediately, or discouraging you from seeking a second opinion. Free regulated services will assess all your options without a commercial incentive to recommend IVAs specifically.