What is the difference between a Debt Relief Order and an IVA?

Full answer

Both a DRO and an IVA are formal insolvency solutions in England and Wales (Scotland and Northern Ireland have separate regimes), but they suit very different situations. A Debt Relief Order is aimed at people who cannot realistically repay what they owe. To qualify you must be under set limits on total qualifying debt, monthly surplus income and total assets, and you must not own a home. Eligibility thresholds are set by the Insolvency Service and are reviewed periodically, so check the current figures on gov.uk rather than relying on old numbers. A DRO is applied for through an approved debt adviser, has a low application fee, and freezes the included debts for a moratorium period of around 12 months, after which they are written off if your circumstances have not improved. An IVA is a legally binding agreement, set up by a licensed insolvency practitioner, in which you pay an affordable monthly amount (or a lump sum) towards your debts, typically for five to six years. At the end, remaining included debt is written off. Creditors holding 75 percent by value of those voting must approve it, and once approved all included creditors are bound. An IVA can protect a home from forced sale in a way bankruptcy may not, but the practitioner's fees come out of your payments and missing payments can cause it to fail and lead to bankruptcy. Who each suits: a DRO fits someone with low income, modest debts and no property; an IVA fits someone with larger debts but a steady surplus to offer creditors. Both appear on the public Individual Insolvency Register and damage your credit file for six years. This is a regulated decision. Get free, impartial advice from StepChange, National Debtline or Citizens Advice before committing, as the wrong route can cost more than it saves.