If you are currently in a debt management plan but are worried that it is not working for you, we consider the possibility of switching to an IVA.
There are a number of reasons why your debt management plan may not be working.
Very often even if you are making your DMP payments on a regular basis, not all of your creditors will agree to stop adding extra interest and charges to your accounts.
As such, despite your payments being made, some of your account balances just do not seem to go down.
In addition to the difficulties of paying off your debt, some of your creditors may still continue to harass you for money.
If you are a home owner, your DMP will not protect you from your creditors taking court action against you and applying for a charging order against your property to secure their debt.
Why change to an IVA?
If you feel that your DMP is not working for you, because it is an informal agreement, you are actually allowed to stop paying it and change to a different solution.
This means that if you feel it is a better option for you, you can stop paying your DMP at any time and change to an individual voluntary arrangement (IVA) which could offer you a number of benefits.
The key advantage of an IVA over a DMP is that you agree to repay a fixed number of payments (normally over 5 years). Once these have been paid, any debt which is still outstanding is written off for good.
In addition to the fixed repayment term, once your IVA is in place, all of your creditors must stop adding their interest and charges by law. You therefore know that your debt balances will not keep rising.
Another advantage of an IVA particularly if you are a home owner is that your creditors cannot take any further action against you. This means that your home is protected from charging orders.
Implications of swapping to IVA
Despite the advantages offered by an individual voluntary arrangement, before you decide to make the change you need to make sure you understand the implications of doing so.
Some people worry that because an IVA is a formal solution their credit rating will be worse off. If you are already in a DMP, this is actually not the case. Your credit rating is no more affect by an IVA than it is in your DMP.
In fact, you may well be better off because your know your IVA will be completed in a fixed time after which your credit rating can start to repair itself where as in a DMP this will not happen until all of your debts are repaid in full which could take many more years.
However, if you are a home owner, the implication of an IVA is that you will have to agree to release equity from your property to help repay your debt if you can do so.
The amount of equity you will have to release will generally depend on what if any re-mortgage deal you can get. Ultimately if you are unable to get a remortgage, then the equity in your property may be ignored and instead you will have to add twelve extra payments to your IVA.
If you earn bonuses or overtime, how much of these you can keep will also be restricted if you start an IVA. You will be able to keep up to 50% of the extra that you earn. However the other 50% will have to be paid to your creditors.
Changing is simple
Very often you started a debt management plan because it seemed to be the easiest way to get your debts under control quickly.
However once your DMP has been running for a few months, you can then see for yourself how it is working. With your creditors no longer screaming at you, you have more time to think and research your options.
At this stage, many people do decide that in fact a DMP is not for them and want to change to an IVA.
Making the change is then relatively simple. It is just a matter of speaking to a debt expert who can help you. Normally you continue paying your DMP until your IVA has been accepted. You then simply stop making your DMP payments and flip them into your IVA.
You should certainly not have to pay any fee for leaving your DMP or for putting paperwork together to start your IVA. If you are asked to pay such a fee, then choose a different IVA expert and this is certainly not necessary.
Related DMP articles
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What to do next
If you are struggling with debt, visit beatmydebt.com
Our experts are available to speak to you about your debt problem and offer advice and solutions.
Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems.
Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.
James Falla is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Debt Management Plans, visit our website at http://www.beatmydebt.com
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