What is the difference between and IVA and Debt Management?

Posted by Ms Trent

March 28, 2009

by Ms Trent

An IVA is an ‘individual voluntary agreement’, where a firm intercedes on your behalf and reaches an agreement with your creditors, and you have to give an approved figure every month to work off your debts. In the case of debt management, you either engage a company to handle your debt repayments, or you come to an agreement with the debtors and pay them back.

In an IVA, there is an official binding whereas an agreement through a debt Management Company is a private arrangement. Both aim to work out a realistic scheme for you to clear your debts. The debts are unsecured debts like credit card payments, bank over drafts, and personal loans etc. They do not include secured loans like mortgage payments, or car lease payments. Debt Management Companies charge a fee up front and attempt to persuade the debtors to concur to a repayment schedule. The amount of debts, income, expenses, and amount available to repay debts are required to be deposited in the case of an IVA or debt management.

Once an IVA is fixed, no more debt is accrued in terms of interest accumulation. Whereas in debt management, the interest will build up till the debt is paid off. Either way, no more debts can be accumulated or the credit rating reduces. It is only after the debts are paid that the credit rating can be regained.

It is a matter of private choice whether a person desires to go with an IVA or debt management. In the case of an IVA, 75% of the creditors must vote for the repayment plan presented, which then become binding to all the creditors. But in case they don’t then there is no alternative. However, this does not apply in the case where a debt management company is handling and discussing with the creditors. It is their job to persuade the debtors to consent to a repayment schedule. There is no voting involved, and there may be numerous agreements that the debt management company makes with the creditors.

A number of people prefer dealing with an IVA as it protects them against getting pressured or taken to court by any of the companies or individual persons. There is also a windfall clause in case a debtor can make a large repayment and pay off their debts. A debt management program does not have any legal bindings as it is simply an agreement on a repayment plan. In case of non-payment, a company can take the defaulter to court. In case of an IVA, if there is a default in payment a warning is issued.

Both IVA and debt management work similarly, and a person is warned not to default on repayments as this can aggravate the situation. Furthermore, no additional loans or debts should be accumulated. In an IVA situation, if needed, another mortgage can be taken. Certainly, the terms will be tougher as the mortgage firm will run a credit check that will be low.

Paying using an IVA is cheaper than paying through a debt management company, as the debt management company will take an upfront charge and charge for the services given. An IVA will also seek to get the debt reduced, and there is no publicity involved.

Debts should not be accumulated to such an extent that bankruptcy needs to be filed or the creditors threaten to take legal action. Living within one’s means and securing themselves financially is no rocket science and hence should be adhered to.

About the Author:

If you are in debt, the most important thing to do is take action and get you finances back on track. An iva is one way you can do this. However to be eligible for an IVA you must meet certain criteria. It is also important that you are guided through the process by an ethical and experienced debt advisor. The wrong advice can leave your credit rating even worse.

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What is the difference between and IVA and Debt Management?

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