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IVA or Debt Relief Order: Which is Best?

When faced with mounting debts, it can be overwhelming to navigate the array of options available for regaining control over your financial situation. This article aims to guide you through understanding two popular debt solutions in the UK – the Individual Voluntary Arrangement (IVA) and the Debt Relief Order (DRO). Both options can provide a structured path towards clearing your debts, but they each come with their own set of advantages and disadvantages. By understanding the specifics of each solution, you can make an informed decision about which option is best suited to your individual circumstances. This article explains the difference between the IVA or Debt Relief Order.

Stay tuned as we delve into the mechanics of these two debt solutions, assess their pros and cons, and evaluate their suitability depending on various factors, including income, amount of unsecured debts, valuable assets, and your future financial plans. We will also address the impact of an IVA and a DRO on your credit rating and the ability to secure new credit.

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Understanding Individual Voluntary Arrangements (IVA)

What is an IVA?

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to repay a portion of your debts over a set period, typically five to six years. It’s an official and legally-binding agreement that can be an effective way to manage significant amounts of debt and offers an alternative to bankruptcy.

How does an IVA work?

An IVA works by consolidating your debts into one monthly payment that you can afford, based on your income and essential living costs. Your appointed Insolvency Practitioner (IP) negotiates with your creditors on your behalf to agree on this payment and the duration of the IVA.

If you adhere to the terms of the IVA, any remaining unsecured debt will be written off at the end of the agreement term. However, it’s worth noting that any missed payments can lead to the failure of the IVA and you could still be made bankrupt.

Pros and Cons of IVA


  • An IVA will freeze all interest and charges on your unsecured debts.
  • Once in place, creditors can no longer take legal action against you to recover the debts.
  • A significant proportion of your debts can be written off upon successful completion of the IVA.
  • Unlike bankruptcy, you’re more likely to be able to keep your home and vehicle, provided you continue to meet any mortgage or hire purchase payments.
  • As long as your work does not prohibit it (such as certain roles in financial services or company directors), you can continue working while in an IVA.


  • An IVA is recorded on your credit file for six years from the start date, making it difficult to secure new credit during this period.
  • Your IVA is a public record, which means it’s listed on the Insolvency Register and could be published in local newspapers.
  • It’s crucial to stick to your budget for the duration of the IVA, as failing to make agreed payments can lead to bankruptcy.
  • You will need to disclose all of your financial details, including income, assets, and debts, which some people might find intrusive.
  • If your circumstances change and you can no longer afford your payments, your IVA could fail.

The Role of an Insolvency Practitioner in IVAs

The role of an IP in an IVA is crucial. They are usually a solicitor or accountant who is licensed by the Financial Conduct Authority (FCA) to handle IVAs. They are responsible for setting up the IVA, acting as the mediator between you and your creditors, handling the paperwork, and overseeing the entire process. They also ensure that you keep to the agreement and distribute your payments to your creditors. It’s important to maintain good communication with your IP throughout the duration of the IVA as they can provide advice if your circumstances change.

Understanding Debt Relief Orders (DRO)

What is a DRO?

A Debt Relief Order (DRO) is a form of debt solution available to residents of England, Wales, and Northern Ireland, offering a low-cost alternative to bankruptcy for those with a low income, minimal assets, and relatively small amounts of debt.

How does a DRO work?

A DRO is a form of insolvency that puts a hold, or a ‘moratorium’, on your debts for a period of 12 months. During this time, creditors listed on the DRO are unable to take any action to recover their money without permission from the court. If your financial circumstances haven’t improved at the end of this period, these debts will be written off.

It’s important to note that not all types of debt can be included in a DRO – for instance, secured loans and certain types of arrears.

Pros and Cons of DRO


  • The DRO application fee is significantly cheaper than bankruptcy fees.
  • Most debts included in a DRO will be written off at the end of the moratorium period.
  • Creditors included in the DRO can’t pursue you for repayment or take any action against you without court permission during the moratorium period.
  • A DRO lasts for a shorter period (12 months) compared to an IVA (typically five to six years).


  • A DRO will have a negative impact on your credit record for six years from the date it’s approved.
  • Not all types of debts can be included in a DRO. For example, student loans and court fines can’t be included.
  • If your financial situation improves during the DRO period, the order can be revoked.
  • You can’t act as a company director or manage a company without court permission while you have a DRO.
  • Your details will be kept on a public register known as the Individual Insolvency Register until three months after your DRO ends.
  • You’re not eligible if you own a house or other valuable assets.

The Role of a DRO Advisor

A DRO advisor plays an essential role in the DRO process. Unlike an IVA, which is managed by an insolvency practitioner, a DRO can only be applied for through an approved DRO adviser, also known as an approved intermediary.

These advisors are usually found in the debt advice sector in organisations such as Citizens Advice. They are responsible for assessing your financial situation, helping with the application, and providing guidance throughout the process. They will also be your point of contact for any queries you may have while the DRO is in place. It’s essential to maintain open and honest communication with your DRO advisor.

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Comparative Analysis: IVA vs DRO

Both an IVA and a DRO are forms of insolvency and can help people manage their debts, but they are suitable for different financial situations. In this section, we’ll highlight the key differences and who might be best suited for each debt solution.

DefinitionA legally binding agreement between you and your creditors to repay part or all of your debts.A debt solution for individuals with a low surplus income, minimal assets and less than £30,000 debt.
DurationTypically 5 to 6 years.12 months.
CostSet up and handling fees vary and are often included in the monthly payments.One-off £90 application fee.
EligibilityDebts of more than £7,000. Regular income.Debts of £30,000 or less. Little or no spare income.
Debt write-offA proportion of unsecured debt may be written off at the end of the term.Debts are written off at the end of the 12-month period if financial circumstances haven’t improved.
Effect on credit fileA record of the IVA stays on your credit file for six years.A record of the DRO stays on your credit file for six years.
Ownership of assetsAssets such as property may need to be re-valued. If there’s equity, it might need to be released to pay towards the debts.You can’t apply if you own a house or other high-value assets.
Public RecordDetails are kept on the publicly accessible Individual Insolvency Register until three months after the IVA ends.Details are kept on the publicly accessible Individual Insolvency Register until three months after the DRO ends.

The Impact on Credit

When considering a debt solution, it’s crucial to understand the potential impacts on your credit. Both an IVA and a DRO will have an effect on your credit score, credit file, and your ability to gain new credit. Let’s examine this further.

Individual Voluntary Arrangement (IVA)

  1. Credit Score: An IVA will have a negative impact on your credit score as it signals to potential lenders that you’ve had difficulty managing your debts.
  2. Credit File: An IVA will be recorded on your credit file for six years from the date it starts. This can make it more difficult to obtain credit during this period.
  3. New Credit: While on an IVA, you must get permission from your insolvency practitioner to borrow more than £500. Even after completion, obtaining new credit may be more challenging until the IVA drops off your credit record.

Debt Relief Order (DRO)

  1. Credit Score: Similar to an IVA, a DRO will negatively impact your credit score as it indicates you’ve been unable to repay your debts.
  2. Credit File: A DRO will be listed on your credit file for six years from the date of order. During this period, it’s likely to be more difficult to obtain credit.
  3. New Credit: During the 12-month moratorium period of the DRO, you can’t take out credit of £500 or more without the lender’s permission. Also, your chances of getting new credit are likely to be lower for the six years the DRO is on your credit file.

It’s important to remember that credit scores can be rebuilt over time. Getting advice from debt solution advisors can also help you understand your options and the long-term impacts on your financial situation.

Your Financial Circumstances: Choosing the Right Solution

Choosing between an Individual Voluntary Arrangement (IVA) and a Debt Relief Order (DRO) will largely depend on your financial circumstances. Here are some key factors to consider:


An IVA requires a regular income as it involves making monthly payments towards your debts over a set period of time, usually five years. If you have a lower income, an IVA may not be suitable, as you’ll need to demonstrate you can keep up with the monthly repayments.

On the other hand, a DRO is more suited to individuals with a low disposable income. In fact, if you have more than £50 spare income per month after paying your essential bills, you won’t be eligible for a DRO.

Unsecured Debts

The total amount of your unsecured debts will also play a part in your decision. A DRO is designed for those with debts less than £30,000, while an IVA may be a better option if your debts exceed this amount.

Valuable Assets

If you own valuable assets, such as a house or a car, this could influence your choice. An IVA allows you to keep your assets, but you might need to release equity from your home as part of the arrangement. In contrast, a DRO is generally only suitable for people who don’t own valuable assets.

Future Financial Plans

Your future financial plans are another important consideration. Both IVA and DRO will have an impact on your credit score, affecting your ability to get new credit in the short term. If you’re planning significant financial moves in the near future, like taking out a mortgage or a business loan, this might sway your decision.

The Importance of Expert Advice

Given the complexity of these financial tools and the potential long-term impact on your finances, it’s strongly advised to seek expert advice. A professional debt solution advisor can help you understand the options available to you and guide you in making the best decision based on your individual circumstances.

Here at Become Debt Free, we provide expert advice on IVAs and other debt solutions. Our team of licensed insolvency practitioners is ready to help. Give us a call at 0800 169 1536, or leave an enquiry on our website to get the process started.

Frequently Asked Questions (FAQs)

Can I apply for an IVA or DRO myself?

You cannot apply for an IVA yourself; it must be done through an insolvency practitioner. For a DRO, you need to go through an approved DRO advisor. They will help you fill in the application and submit it to the Insolvency Service for you.

How long will an IVA or DRO affect my credit rating?

Both IVA and DRO will negatively impact your credit rating. An IVA will remain on your credit file for six years, or until the IVA is completed if it lasts longer than six years. A DRO will also stay on your credit file for six years.

Can I get a mortgage after an IVA or DRO?

Getting a mortgage might be difficult during the period the IVA or DRO is on your credit file. Lenders may be wary to lend to those who have previously had difficulty managing their debts. After the six-year period, although the IVA or DRO is removed from your credit file, some mortgage lenders may still ask if you have ever been subject to one.

Can I be a company director if I have an IVA or DRO?

You can still be a company director if you have an IVA. However, with a DRO, you can’t be a director of a company or manage a company without court permission during the DRO period, usually 12 months.

What if my circumstances change during the IVA or DRO?

If your financial situation changes during the term of your IVA, you should inform your insolvency practitioner immediately. They can review your situation and may be able to adjust your payments. In the case of a DRO, if your circumstances improve, and you’re able to pay your debts, the DRO can be revoked.

Remember, it’s always a good idea to seek expert advice before making a decision on debt solutions. If you have any more questions, feel free to get in touch with our team at Become Debt Free on 0800 169 1536 or leave an enquiry on our website.

Get Expert Debt Advice from Become Debt Free

Embarking on a journey towards financial freedom isn’t easy, but you don’t have to do it alone. At Become Debt Free, we’re here to help guide you every step of the way. Our team of licensed insolvency practitioners offers expert advice and robust solutions for individuals grappling with debt across the UK.

We understand that each situation is unique, so we take the time to understand your individual financial circumstances and tailor our advice to your specific needs. Whether it’s an Individual Voluntary Arrangement, a Debt Relief Order, or an alternative debt solution, we’ll help you understand your options and make the best decision for your financial future.

Don’t let debt dictate your life. Take the first step towards regaining control of your finances. Contact Become Debt Free on 0800 169 1536 or leave an enquiry on our website. Our team is ready to help you explore the possibilities and find the right debt solution for you. It’s time to put debt behind you and start afresh – with Become Debt Free, you can.

Remember, getting debt advice is always a good idea and it’s never too early to start. So, don’t wait, get in touch with us today, and let’s take the first step towards a debt-free future, together.


The primary sources for this article are listed below.

The Insolvency Service – GOV.UK (

Citizens Advice

How to get a Debt Relief Order (DRO) – GOV.UK (

Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.

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Become Debt Free is a trading style of Re10 (Finance) Limited Registered Number 04651137.  Data Protection Act Registration Number – Z8613095

Become Debt Free specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland.  We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment.

* To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors.  The amount of debt write off is based on your own personal circumstances – typically this could be up to 85% of what you owe; and this has been achieved by over 10% of our customers who have successfully completed their IVA’s in the last 12 months.  The amount of debt write off differs for each customer and is dependent upon their individual financial circumstances and subject to the approval of their creditors.

Andrew Bowers is authorised in the UK to act as Insolvency Practitioner by the Insolvency Practitioners Association.


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