Individual Voluntary Arrangements (IVA), Protected Trust Deeds (PTD) and Bankruptcy are all legally binding agreements – this means that once in place, creditors agree to the terms of the agreement and are obliged to help you deal with your debt problems. This normally entails creditors agreeing to a reduced repayment rate; freeze interest and charges and write off a proportion of your debt. IVAs and PTDs are subject to creditor agreement, which is not always guaranteed, and relies on creditors holding a certain value percentage of the debt agreeing to the proposal (75% for IVA and one third for PTDs). Please note, IVAs and PTDs are subject to creditor agreement, which is not always guaranteed.

Debt Management Plans (DMP) are informal arrangements with creditors, and although plans are subject to creditor agreement, it is not based on a percentage of creditors agreeing to it. Because a DMP is not legally binding agreement, creditors could still request repayments in full, and in some cases take legal action to recoup outstanding money.

As legally binding agreements, creditors are not allowed to ask those involved in Individual Voluntary Arrangements (IVA), Protected Trust Deeds (PTD) or Bankruptcy for payment other than what has been agreed. They cannot request an increase in payments or request that debts are settled in full. However, this only applies to unsecured debts included in the IVA, PTD or Bankruptcy Order.

A Debt Management Plan (DMP) is not a legally binding contract, so creditors do not have to stick to specific terms and conditions. This means that they could request additional payments or seek legal action to recoup outstanding debts.

It is standard for procedure for Individual Voluntary Arrangement (IVA), Protected Trust Deed (PTD) and Bankruptcy cases to be reported on public registers or in financial areas of certain publications. This is mainly due to the seriousness of an individual’s financial situation. Debt Management Plans are not publicised in the press because they are not legally binding agreements.

A Debt Management Plan offers a level of flexibility that other debt solutions cannot match. Repayments are based on what you can realistically afford – allowing enough money to pay your other bills, rent / mortgage and other living expenses and outgoings. Although you cannot lower repayments below what has been negotiated, you will have the flexibility to increase repayments when your circumstances change for the better.

This means you will be able to repay creditors and clear debts quicker than if you were to continue repaying your debts at a lower rate.

Individual Voluntary Arrangement (IVA) and Protected Trust Deed (PTD) repayments are also based on what you can afford to repay and last for an agreed period of time. You could also be asked to release equity from your home to help repay creditors.

Bankruptcy also lasts for an agreed period; however repayments are not just based on what you can afford as you could be required to sell valuable items – including your home – to repay creditors and contribute repayments from your salary.

If you enter a Debt Management Plan, you will not have to release equity from your home to repay creditors. If you enter a legally binding agreement such as an IVA or PTD, then you could be required to release equity from your property to help repay debts, but this depends on your personal situation.
Homeowners going through Bankruptcy will be required to sell their property to help repay creditors.

Creditors agree to write off a proportion of debt owed to them in IVA and PTD cases – therefore those involved in an agreement will be saved from repaying all debts in full. Those going through Bankruptcy also normally have a proportion of debts written off.

Although you will not have debts written off as part of a Debt Management Plan, you could still save money in the long term if creditors agree to freeze interest and charges on debts owed. However, this is not guaranteed.

Only unsecured debts can be included in an IVA or PTD. Unsecured debts include debts that are not secured against a property or asset, these can include a personal loan, bank overdraft, catalogue account, credit card or store card. Normally as part of an IVA or PTD agreement, creditors agree to write off a proportion of the debt.

Legally binding agreements are fixed for a certain amount of time. An IVA lasts for 5 years, PTDs last for 3 years and Bankruptcy for 12 months.

Debt Management Plans are not legally binding or fixed for a number of years – giving you greater control over the period of time in which you repay your debts.

Creditors are obliged to freeze interest and charges on all IVA and PTD agreements. However, if you are involved in a Debt Management Plan, it’s worth noting that creditors are not obliged to freeze interest and charges as it is not a legally binding agreement. Therefore if they do not freeze interest and charges, the total amount of debt owed could increase.

If you are involved in an IVA or PTD then harassing letters or phone calls from creditors will stop. Similarly, if you’re involved in a Debt Management Plan, communica tion from creditors will reduce, but may not stop altogether as you are not granted the protection that a legally binding agreement provides.