Understanding UK Debt Solutions: IVA vs DMP vs Bankruptcy
Short answer: there are safe, formal ways to deal with unmanageable debt in the UK. The right option depends on your income, assets, and goals. This guide explains how IVAs, DMPs, and bankruptcy work, what they cost in time and impact, and how to choose.
First steps before choosing
- List all debts, interest rates, and arrears
- Work out your realistic monthly budget and surplus
- Separate priority debts (rent, mortgage, council tax, energy, court fines) from non-priority debts (credit cards, loans, overdrafts)
- Ask creditors for temporary breathing room if needed. In England and Wales you may qualify for the Breathing Space scheme
What is an IVA?
An Individual Voluntary Arrangement is a legally binding agreement managed by an Insolvency Practitioner. You make affordable monthly payments, usually for five to six years. Remaining unsecured debt is normally written off at the end if you keep to the terms.
IVA key features
- Set up and supervised by an Insolvency Practitioner
- Interest and charges are frozen once approved
- Creditors cannot take enforcement while it runs
- Works best when you have multiple creditors and a stable surplus
IVA pros
- Part of the debt is usually written off at completion
- Legal protection from most creditor action
- More privacy than bankruptcy
IVA cons
- Long commitment and strict budgeting
- Shows on your credit file for six years
- Can fail if payments are missed or circumstances change and cannot be agreed
What is a Debt Management Plan (DMP)?
A DMP is an informal plan to pay non-priority debts at a reduced, affordable rate. A charity can run it for free and distribute your single payment among creditors. It is flexible, but it is not legally binding.
DMP key features
- Informal arrangement that you can change or stop
- Creditors may freeze interest and charges, but this is not guaranteed
- Used for credit cards, loans, catalogues, and overdrafts
DMP pros
- Simple to start and adjust
- No minimum debt level
- Lower immediate risk to assets than bankruptcy
DMP cons
- No automatic write-off of debt
- Creditors can still take legal action in some cases
- Can take a long time if balances are large
What is bankruptcy?
Bankruptcy is a formal insolvency process that clears most unsecured debts. You apply online and, in most cases, you are discharged after twelve months. Some assets may be sold to repay creditors. If you have surplus income you may make payments for up to three years.
Bankruptcy key features
- Suitable when debts are unaffordable and there are few assets
- Application involves a fee
- Your name appears on the public insolvency register
Bankruptcy pros
- Debts are cleared quickly compared to other options
- Ends most creditor contact and enforcement
- Provides a clean break and fresh start
Bankruptcy cons
- Risk to your home, car, and other valuable assets
- Public record and restrictions during the process
- Credit file impact for six years
IVA vs DMP vs Bankruptcy at a glance
| Feature | IVA | DMP | Bankruptcy |
|---|---|---|---|
| Legal status | Binding agreement | Informal plan | Court-based legal process |
| Typical duration | 5 to 6 years | Until debts are repaid | 12 months discharge, payments up to 3 years |
| Debt written off | Usually at the end | No automatic write-off | Yes for most unsecured debts |
| Protection from creditors | Yes | Not guaranteed | Yes |
| Risk to assets | Possible, depends on equity | Low | Higher, assets can be sold |
| Credit impact | Six years | While plan runs, then improves | Six years |
How to choose
- If you have little surplus income and few assets: bankruptcy may clear debts fastest
- If you have steady surplus and want creditor protection: an IVA can work if affordable for the full term
- If you need flexibility or a short-term bridge: try a charity-run DMP and review after a few months
Other options to ask about
- Debt Relief Order (DRO): for low income and low assets, subject to eligibility rules
- Token payments: temporary low payments while your situation stabilises
- Settlement offers: partial settlements if you can raise a lump sum
Frequently asked questions
Will I lose my home in an IVA or bankruptcy?
In an IVA your equity may need to be addressed, for example through remortgaging or an extra year of payments. In bankruptcy your home could be sold if there is equity. Get tailored advice before you decide.
Do all creditors have to agree to an IVA?
No. An IVA is approved if creditors holding enough debt value vote in favour. Once approved it binds most unsecured creditors, even those that voted against.
Can interest and charges continue in a DMP?
They can, although many creditors choose to freeze them. A charity running your DMP can request this on your behalf, but it is not guaranteed.
How long will my credit file be affected?
IVAs and bankruptcy are recorded for six years from the start date. A DMP is not recorded as a single marker, but missed payments and defaults can appear until balances are cleared.
Are council tax, rent, and energy debts included?
These priority debts need urgent attention and different handling. Speak to a debt charity to create a plan that protects your home and essential services first.
Get free, confidential help
- StepChange – full advice and DMPs
- National Debtline – helpline and templates
- Christians Against Poverty (CAP UK) – local support
- Citizens Advice – face to face guidance