IVAs Vs Debt Management Plans (DMPs)
Out of the many debt solutions available, the one you may come across time and again is the Debt Management Plan, or DMP for short. In fact you’re likely to find a lot of people pushing you towards setting up a DMP based on costs and not considering whether it would suit your circumstances.
The Debt Management Scheme is a very formal name for a very informal arrangement. A debt management company, which could be a private financial company or a debt charity, distribute a monthly payment from you to your creditors. The debt management company will usually negotiate with your creditors to set up a payment plan for you and encourage them to stop your interest and charges, and in return they charge a small sum – usually around 10% - for the service. This certainly seems inexpensive in comparison to an IVA, but a DMP differs from an IVA is several crucial respects.
Your creditors do not have to stick to a DMP and can take action against you if they wish. There is no legal come-back on them if they review your case six months after you start a DMP and then demand more money, and they do not have to go through your debt management representative. They can contact you direct. An IVA gives you legal protection against your creditors for the duration of the payment plan and they are not allowed to contact you at any time.
Some may and some may not, leaving you still fighting to get the others to agree and possibly even fighting court action. With an IVA, if the creditors that make up 75% of the value of your debt agree to the plan, the other 25% have no choice but to comply. It is legally binding.
Stopping the spiral of interest and charges with a DMP is a gesture of goodwill from your creditors, whereas with an IVA it is a legal requirement. With a DMP, your creditors could reinstate the charges and interest at any time leaving you having to start again.
An IVA allows you to pay only what you can afford and then writes off the rest. A DMP is based on you paying off all of your debt and some of your creditors may not agree to reducing your payments to allow you to do this easily.
IVAs are a flat five years paying only what you can afford and the remainder is written off. A DMP is however long it has to be to get all of the debt paid off.