Is an IVA Better Than a Debt Relief Order (DRO)
If you’re struggling with debt, you might be considering a range of solutions to get back on track. Two of the most common debt relief options in the UK are an Individual Voluntary Arrangement (IVA) and a Debt Relief Order (DRO). Both options can offer significant relief, but how do you know which one is better suited for your situation? Let’s explore the key differences between an IVA and a DRO, so you can make an informed decision with the help of an experienced Insolvency Practitioner.
What Is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay a portion of your debt over a fixed period, usually 5-6 years. During this time, you make monthly payments based on what you can afford. At the end of the IVA, any remaining eligible debt is written off. An IVA offers a clear path to financial recovery for UK citizens who have substantial debt and are looking for a structured solution.
What Is a Debt Relief Order (DRO)?
A Debt Relief Order (DRO) is a more affordable and quicker alternative to an IVA. It is designed for individuals with relatively low levels of debt (up to £20,000) and few or no assets. If you qualify for a DRO, your debt will be written off after a 12-month period, provided you don’t have any significant changes in your financial situation during that time.
DROs are particularly useful for those who have low income and very little or no assets to protect. However, there are strict eligibility criteria, and DROs have a less flexible repayment structure compared to an IVA.
Key Differences Between an IVA and a DRO
- Eligibility Criteria
- IVA: To be eligible for an IVA, you must have unsecured debt of at least £6,000 and owe money to two or more creditors. You also need to be able to make monthly repayments based on what you can afford.
- DRO: A DRO is only available to individuals who have debt of £20,000 or less, no assets worth over £1,000, and a low income.
- **Amount of Debt
- IVA: An IVA can help with much higher levels of debt, making it suitable for individuals who owe substantial amounts.
- DRO: A DRO is limited to those with debt of up to £20,000. It is ideal for individuals who have smaller amounts of debt and fewer assets.
- Repayment Terms
- IVA: In an IVA, you agree to pay a portion of your debt over 5-6 years. After this period, any remaining eligible debt is written off.
- DRO: In a DRO, you won’t make payments toward your debt for 12 months. After that period, your debt is written off. This makes it a quicker route to debt relief compared to an IVA.
- Impact on Assets
- IVA: An IVA may require you to release equity from your property if you own one, or it may extend the length of the IVA to 7 years. However, you generally get to keep your home and other essential assets.
- DRO: A DRO does not require you to sell assets, but it’s only suitable for those who have little or no assets to protect in the first place.
- Impact on Credit Rating
- Both an IVA and a DRO will negatively impact your credit score. They will remain on your credit file for six years from the date they are approved. However, because an IVA involves a structured repayment plan over several years, it may be seen as a more serious commitment compared to a DRO, which lasts only 12 months.
- Protection from Creditors
- IVA: Once an IVA is in place, creditors are legally bound by the terms, meaning they cannot take further action against you, such as applying for a court order or charging you fees.
- DRO: A DRO also offers protection from creditors, preventing them from taking legal action against you during the 12-month period.
Which Is Right for You?
Choosing between an IVA and a DRO depends on your personal financial situation. If you owe a larger amount of debt and have regular income, an IVA may be the better option. However, if you have a small amount of debt and no significant assets, a DRO could provide a quicker and more affordable solution.
It’s important to consult with an experienced Insolvency Practitioner to assess your specific financial situation and determine the best route for you.
How We Can Help
At Apply for IVA, we specialise in helping UK citizens navigate their debt management options. Whether you’re considering an IVA or a DRO, our team of Insolvency Practitioners is here to guide you through the process and help you make the best choice for your financial future.
Take the First Step Today
If you’re ready to explore your options, contact us for a free consultation. We’ll assess your situation and help you find the most suitable solution to regain control over your finances.
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