What is the difference between and IVA and Debt Management?

An IVA is an 'individual voluntary agreement', where a firm negotiates on your behalf and works out a contract with your creditors, and you have to give a decided amount on monthly basis to pay off your debts. In the case of debt management, you either appoint a firm to deal with your debt repayments, or you reach an agreement with the people you are in debt to and repay them.

In an IVA, there is a legal binding whereas an arrangement through a debt Management Company is a private arrangement. Both try to work out a feasible method for you to pay off your debts. The debts are unsecured debts like credit card payments, bank over drafts, and personal loans etc. They do not cover secured loans like mortgage payments, or car lease payments. Debt Management Companies charge a fee up front and try and convince the debtors to agree to a repayment schedule. The amount of debts, income, expenses, and amount available to repay debts are required to be submitted in the case of an IVA or debt management.

Once an IVA is agreed upon, no further debts are accrued in terms of interest accumulation. Whereas in debt management, the interest accumulation will continue till the debt is repaid. In both cases, no further debts can be accumulated and the credit rating drops. It is only after the debts are paid that the credit rating can be regained.

It is a matter of individual preference whether a debtor decides to go with an IVA or debt management. In the case of an IVA, 75% of the creditors must vote in favour of the repayment plan put forward, which then become binding to all the creditors. But in case they don't then there is no other option. However, this does not apply in the case where a debt management company is handling and bargaining with the creditors. It is their assignment to convince the debtors to agree to a repayment schedule. There is no voting involved, and there may be various 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 less expensive than paying via a debt management company, as the debt management company will take an advance fee and charge for the services provided. An IVA will also attempt to get the loan reduced, and there is no publicity involved.

Debts should not be accrued to such levels that insolvency needs to be declared or the creditors threaten to sue. Living within one's means and stabilizing themselves financially is no rocket science and thus should be adhered to.