Debt Relief Order vs IVA: Which Is Right for You in 2026?
DRO vs IVA in 2026: compare eligibility, costs, debt limits and credit impact so you can choose the right UK debt solution for your situation.
Quick answer
Choose a Debt Relief Order if you have very little spare money, modest unsecured debts and almost no assets - it is cheap and writes off qualifying debt after about a year. Choose an IVA if you have a steady surplus income, want to repay part of what you owe and protect assets such as a home. Both are formal insolvency solutions, so get free advice first.
Picking between a Debt Relief Order and an Individual Voluntary Arrangement is one of the most consequential personal-finance decisions you can make. Both are legally binding insolvency solutions available in England, Wales and Northern Ireland (Scotland has its own equivalents). They have very different costs, eligibility rules and consequences, so the right choice depends almost entirely on your income, your debts and what you own.
This guide explains how each works, who qualifies, what they cost and how they affect your future - using verified mechanisms rather than guesswork on figures that change frequently. Where a specific threshold applies, confirm the current number with your adviser or on gov.uk before you act.
How a Debt Relief Order works
A DRO is designed for people who genuinely cannot pay their debts and have little prospect of doing so. When a DRO is approved, your qualifying debts are frozen for a moratorium period of around 12 months. During this time creditors listed in the order cannot take action against you. If your circumstances have not improved by the end of the period, the debts are written off entirely.
Three things define DRO eligibility:
- Total debt must be below a set cap.
- Surplus income - what you have left each month after essential living costs - must be below a low monthly limit.
- Assets must be below a cap, including any vehicle above a set value.
Because these limits change, your adviser will check the current figures against your budget. The application itself cannot be made directly by you - it must go through an authorised debt adviser, who is usually based at a free charity. The only cost is the official application fee paid to the Insolvency Service.
How an IVA works
An IVA is a formal agreement between you and your creditors, supervised by a licensed insolvency practitioner. You agree to pay a set amount each month - drawn from your surplus income - typically for five to six years. At the end, any remaining qualifying debt is legally written off, provided you have kept to the terms.
Unlike a DRO, an IVA has no fixed upper debt cap. What matters is whether you can offer creditors a meaningful, sustainable repayment. Creditors holding 75% by value of the debts that vote must approve the proposal; once approved, it binds all included creditors, even those who voted against it.
The insolvency practitioner's fees are taken out of the payments you make rather than charged separately upfront. That is convenient, but it means a portion of every payment funds the arrangement rather than your creditors - one reason free advice matters before you sign up.
DRO vs IVA at a glance
| Feature | Debt Relief Order | Individual Voluntary Arrangement |
|---|---|---|
| Best for | Very low income, modest debt, few assets | Regular surplus income, larger or mixed debts |
| Typical duration | About 12 months | Usually 5 to 6 years |
| Debt limit | Capped (confirm current figure) | No fixed cap |
| Surplus income | Must be very low | Must be enough for affordable payments |
| Assets | Strict cap, limited vehicle value | Can protect a home if payments are met |
| Who administers it | Authorised debt adviser applies | Licensed insolvency practitioner |
| Main cost | Single application fee | Fees taken from your monthly payments |
| Credit file | Six years from approval | Six years from start date |
| Public register | Yes | Yes |
Which debts are covered
Both solutions deal with most unsecured debts: credit cards, overdrafts, personal loans, catalogue and store cards, council tax arrears and many benefit overpayments. Neither usually covers court fines, child maintenance, secured debts such as mortgages, or most car finance agreements.
Student loans are a special case. They are not written off by a DRO or an IVA and continue to be collected through the tax system based on your income. UK student loan repayments only begin once you earn above the relevant threshold - Plan 1 GBP 26,900, Plan 2 GBP 29,385, Plan 5 GBP 25,000, and Postgraduate GBP 21,000 - with most plans deducting 9% of income above the threshold (6% for postgraduate loans). If you are unsure how much is coming out of your pay, our
Student Loan Repayment Calculator
Calculate monthly student loan repayments for Plans 1, 2, 4 and 5.
Open Student Loan calculatorWorking out your real surplus income
Eligibility for both solutions hinges on your surplus income - your take-home pay minus genuinely essential costs such as rent or mortgage, utilities, food, travel and childcare. This is not the same as your headline salary, because Income Tax and National Insurance are deducted first.
For the 2026/27 tax year, the Personal Allowance is GBP 12,570, the basic rate of Income Tax is 20% on income above that up to GBP 50,270, and employee National Insurance is 8% on earnings between GBP 12,570 and GBP 50,270, then 2% above. To see exactly what lands in your account each month, use the
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
Open Take-Home Pay calculatorOnly once you know your true take-home figure can you and your adviser judge whether your surplus is low enough for a DRO or high enough to sustain an IVA.
Costs compared
The cost structures are very different:
| Cost element | Debt Relief Order | Individual Voluntary Arrangement |
|---|---|---|
| Upfront fee | One application fee to the Insolvency Service | None paid separately upfront |
| Ongoing payments | None during the moratorium | Monthly payment for 5 to 6 years |
| Adviser or practitioner cost | Adviser help is free | Practitioner fees deducted from payments |
| Total typical cost | Low, one-off | Higher overall, spread over years |
A DRO is far cheaper in cash terms, which is appropriate given it is aimed at people with the least money. An IVA costs more overall, but it allows you to repay a portion of your debts and can protect assets that a DRO cannot.
How each affects your future
Both solutions damage your credit profile for six years and appear on the public register. While the records are live you will struggle to obtain mainstream credit, may face higher interest rates afterwards, and could find some existing accounts closed.
The recovery path differs. A DRO is usually behind you within about a year, after which you can begin rebuilding - though the record lingers on your file. An IVA ties up your finances for five to six years, with payments reviewed if your income changes. A pay rise during an IVA may increase what you pay, whereas during a DRO a significant improvement could lead to the order being revoked.
Neither solution should be entered into to clear small debts you could manage with budgeting or a debt management plan. They are serious, formal procedures with lasting effects.
When a different solution may fit better
DROs and IVAs are not the only options. A debt management plan is an informal arrangement to pay creditors at a reduced rate, without the public-register consequences of insolvency. Bankruptcy may be more appropriate for very large debts or where assets and income do not fit an IVA. A breathing-space scheme can pause interest and enforcement while you take advice.
Because the right route depends on your full picture - including any household budget pressures and future income - impartial advice is essential. Free services such as Citizens Advice, StepChange and National Debtline can run through every option with you at no cost.
Frequently overlooked details
Two points trip people up. First, joint debts: if a debt is in joint names, dealing with your share through a DRO or IVA does not remove the other person's liability, so creditors may pursue them. Second, new debt: taking on further credit during either solution is restricted and can cause it to fail.
Finally, keep records. Save your acceptance documents, payment receipts and the completion certificate when your solution ends, as you may need to prove the debts were dealt with when applying for credit in future.
The bottom line
If you have almost no spare income, modest unsecured debts and few assets, a Debt Relief Order is usually the cheaper, faster route to a fresh start. If you have a reliable surplus, larger debts or assets such as a home to protect, an Individual Voluntary Arrangement lets you repay part of what you owe and write off the rest over time.
Whichever way you lean, do not apply blind. Work out your true take-home pay and surplus, list every debt, and speak to a free, impartial debt adviser before you commit. The decision shapes your finances for at least six years, so it is worth getting right.
Frequently asked questions
What is the main difference between a DRO and an IVA?
A Debt Relief Order (DRO) is a low-cost solution for people with very little money and modest debts who own few assets. It freezes debts for around a year and then writes them off. An Individual Voluntary Arrangement (IVA) is a formal agreement to pay creditors a portion of what you owe, usually over five to six years, and is suited to people with a regular surplus income who want to avoid bankruptcy.
How much does a DRO cost in 2026?
A DRO has a single application fee paid to the Insolvency Service. You cannot apply directly yourself - you must use an authorised debt adviser, usually at a free charity such as Citizens Advice, StepChange or National Debtline. The adviser's help is free, so the only cost to you is the official application fee. Always confirm the current fee with your adviser or on gov.uk before applying.
Can I get a DRO if I am a homeowner?
Generally no. A DRO is designed for people with few or no assets, and owning a home usually puts you above the asset limit. There are strict caps on total debt, surplus income and the value of assets you can hold, including any vehicle above a set value. If you own property you will normally need to consider an IVA, a debt management plan or bankruptcy instead. A free adviser can confirm your eligibility.
Does an IVA write off all my debt?
No. An IVA writes off only the debt that remains unpaid after you complete the agreed payments, typically over five to six years. You repay an affordable amount from your surplus income, and any qualifying debt left at the end is legally written off when the IVA completes successfully. If you stop paying, the IVA can fail and creditors may pursue you again or seek bankruptcy.
Will a DRO or IVA affect my credit score?
Yes, both seriously affect your credit file. A DRO stays on your credit record for six years from the date it is approved. An IVA also stays on your file for six years from the start date, which can be longer than the arrangement itself if it runs for five years. During and after either solution you will find it harder and more expensive to borrow, and some accounts may be closed.
Which debts can a DRO or IVA cover?
Both cover most unsecured debts such as credit cards, overdrafts, personal loans, catalogue debt, council tax arrears and many benefit overpayments. Neither typically covers court fines, child maintenance, student loans, or secured debts like mortgages and most car finance. Student loan repayments continue to be collected through the tax system based on your income. Always list every debt with your adviser so nothing is missed.
Can I switch from a DRO to an IVA or vice versa?
You cannot run both at once, and you cannot freely switch midway. A DRO usually lasts about a year, after which qualifying debts are written off, so there is rarely a need to switch. If your circumstances improve significantly during a DRO you must report this, and it could be revoked. If an IVA becomes unaffordable, the alternative is usually a debt management plan or bankruptcy rather than a DRO.
Do I need a solicitor to set up an IVA?
No. An IVA must be set up and run by a licensed insolvency practitioner, not a solicitor. The insolvency practitioner proposes the arrangement to your creditors and supervises the payments. Their fees are taken from the payments you make rather than charged separately upfront, but this means more of your money goes to fees and less to creditors. Speak to a free debt charity first so you understand all your options before committing.
Will my employer find out about a DRO or IVA?
In most cases your employer will not be told. Both DROs and IVAs are recorded on the public Individual Insolvency Register, which anyone can search, but employers do not routinely check it. However, some regulated professions - for example in finance, law or accountancy - have rules about insolvency, so check your employment contract and any professional body requirements before you apply.
How do I know which option is right for me?
Start by working out your true surplus income after essential costs using a budget and a take-home pay calculator. If you have little or no spare money, modest debts and few assets, a DRO may fit. If you have a steady surplus and want to repay something while protecting assets, an IVA may suit. The safest first step is free, impartial advice from Citizens Advice, StepChange or National Debtline.
Try the calculators
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