Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) are both formal debt solutions used in the UK, but they are designed for very different financial situations. While both can deal with problem debt, eligibility, cost, duration, and consequences vary significantly.
This page explains how IVAs and DROs typically work, the key differences between them, and the situations in which each option is commonly considered. It is provided for general information only and does not offer advice or recommendations.
What Is an IVA?
A more detailed explanation of how an IVA works is available here.
IVAs are arranged and managed by licensed Insolvency Practitioners. Once approved by creditors, the arrangement becomes legally binding. Monthly payments are usually required, based on disposable income.
At the end of the IVA, any remaining unsecured debt is often written off, provided the terms of the agreement have been followed.
What Is a Debt Relief Order (DRO)? Further detail about eligibility and how the process works is explained in this guide to Debt Relief Orders.
A Debt Relief Order (DRO) is a formal insolvency solution designed for people with low income, minimal assets, and relatively low levels of debt.
A DRO freezes eligible debts for 12 months. During this period, creditors cannot take action to recover the debt. If the individual’s circumstances do not improve during that time, the debts included in the DRO are usually written off.
DROs are applied for through approved intermediaries and have strict eligibility criteria.
Key Differences Between an IVA and a DRO
Although both are formal debt solutions, there are several important differences.
An IVA:
- Usually lasts five or six years
- Requires regular monthly payments
- Has no strict debt limit
- Can allow individuals to retain certain assets
- Requires creditor approval
A DRO:
- Lasts 12 months
- Requires very low or no disposable income
- Has strict debt and asset limits
- Does not involve monthly repayments
- Does not require creditor approval
The impact on credit records recorded on credit files, which can affect access to financial products
Situations Where an IVA Is Commonly Considered, DROs are often associated with low income or benefit-based situations.
An IVA may be explored in situations where:
- The individual has a stable income
- Debt levels exceed DRO limits
- Monthly repayments are affordable
- Asset protection is a consideration
Each IVA proposal is assessed on a case-by-case basis.
Situations Where a DRO Is Commonly Considered
A DRO is more commonly explored when:
- Income is low or irregular
- There are few or no assets
- Total debts fall within DRO limits
- Other formal solutions are unsuitable
Eligibility rules for DROs are strict and must be met at the time of application.
Impact on Credit Files and Public Records
Both IVAs and DROs are recorded on credit files and public insolvency registers. These records can affect access to credit, housing, and some financial products for several years.
The length and impact of these records depend on the solution used and individual circumstances.
Important Information
This website provides general information only and does not offer legal, financial, or debt advice. IVAs and DROs are regulated debt solutions and suitability depends on individual circumstances. Always seek advice from a qualified, authorised professional before making decisions about your financial situation.