UK Debt Help Options: DMP, IVA, DRO, Bankruptcy

UK borrowers in debt have a structured set of options ranging from informal arrangements to formal insolvency. The right option depends on debt level, income stability, asset position, family circumstances, and the long-term impact each carries. Free advice from CONC 8-recognised charities is the standard starting point.

This guide covers each main option in detail with eligibility thresholds, typical durations, and the credit-file consequences. The framework is set by the Insolvency Act 1986, the Insolvency Rules 2016, and the FCA CONC sourcebook.

Debt Management Plan

A DMP is an informal arrangement to pay off debts at affordable monthly amounts over a longer period than originally contracted. Free DMPs are administered by StepChange, National Debtline, and other CONC 8-recognised charities. The borrower pays one monthly amount to the administrator, who distributes pro-rata to creditors.

Creditors are not legally required to accept the DMP terms but typically do because the alternative (formal insolvency) usually returns less. Most freeze interest and fees on accepting; the legal obligation remains until the debt is paid.

Typical duration 5-15 years depending on debt level and affordable monthly payment. Defaults appear on credit files for the affected accounts; the DMP itself is not a public record but the underlying defaults are visible. After completion, credit recovery takes 6 years from the last default date.

Worked example: GBP 28,000 of debt across credit cards, personal loan and overdraft. Affordable monthly payment GBP 350 after necessary expenses. DMP duration approximately 7 years assuming frozen interest. Total paid GBP 29,400 (slightly above original due to small fees and any unfrozen interest); avoids the legal costs of formal insolvency.

Individual Voluntary Arrangement

An IVA is a formal legal arrangement supervised by a licensed Insolvency Practitioner (IP) under the Insolvency Act 1986. The borrower pays a set monthly amount typically for 5-6 years; at the end the remaining debt is written off if all terms have been met.

The IP arranges the IVA proposal, gets creditors' agreement (75% by value must approve), and supervises payments. The IP charges fees that are deducted from the monthly payment; typical fees GBP 4,000-GBP 8,000 across the IVA term. The IVA is registered on the Individual Insolvency Register, a public record.

IVA suits borrowers with debts above GBP 7,000-10,000, regular income, and some assets they want to protect (a home, for instance). Bankruptcy might require sale of the home; IVA typically preserves it. Credit file impact is severe: the IVA appears for 6 years from the start date; significant restrictions on borrowing during this period.

Worked example: GBP 45,000 of debt, GBP 350 a month affordable payment. IVA proposal: pay GBP 350 a month for 6 years (total GBP 25,200), IP fees within this, remaining GBP 19,800 written off at completion. Creditors receive around 56 pence in the pound. Borrower's home preserved.

Debt Relief Order

A DRO is a fast-track insolvency for low-income borrowers with limited debts and minimal assets. Eligibility from June 2024: debts up to GBP 50,000 (raised from GBP 30,000), assets under GBP 2,000, surplus income under GBP 75 a month, no homeownership.

The DRO is granted by the Insolvency Service through a CONC 8 approved intermediary (StepChange, National Debtline). Application fee GBP 90 (often waived for hardship cases). During the 12-month DRO period, creditors cannot enforce. After 12 months, qualifying debts are written off.

The DRO appears on credit files for 6 years from start. Some restrictions during the 12-month period: cannot borrow above GBP 500 without disclosing the DRO, cannot act as a company director, cannot apply for certain professional roles.

Worked example: a Universal Credit claimant with GBP 18,000 of debts (credit cards, council tax arrears, mobile phone debt), no home, no savings above GBP 100, surplus income GBP 40 a month. DRO granted; 12 months later all GBP 18,000 written off. Total cost: GBP 90 application fee.

Bankruptcy

Bankruptcy is the formal insolvency route for higher-debt situations. The borrower (debtor's bankruptcy) or a creditor (creditor's petition for debts over GBP 5,000) applies. Application fee GBP 680 plus GBP 130 court fee for the borrower's own application.

On bankruptcy, the official receiver or appointed trustee takes control of the borrower's non-essential assets and disposes of them to pay creditors. The borrower's bank account is typically restricted; an income payment agreement may apply for 3 years where surplus income exists.

Bankruptcy lasts 12 months (the 'restriction period'); after discharge the borrower is freed from most debts. Some debts survive (student loans, fines, child maintenance). Credit file shows bankruptcy for 6 years. Significant restrictions during the 12 months: directorship, professional regulation, borrowing above GBP 500 without disclosure.

Edge case: a homeowner facing bankruptcy may have their home included in the bankrupt's estate, with the trustee selling to realise value for creditors. Where the home has significant equity, the trustee will normally pursue sale. Where equity is small or negative, the home may be transferred back or sold to a partner. Each case is fact-specific.

Choosing the right option

Debt level under GBP 7,000 with regular income: DMP usually appropriate. The smaller debts can be cleared with affordable monthly payments without the formal-insolvency complexity. Creditors typically cooperate.

Debt level GBP 7,000-GBP 50,000 with regular income and assets to protect: IVA usually appropriate. The formal arrangement provides legal protection during the 5-6 years and writes off the residual debt. Home and other assets typically preserved.

Debt level under GBP 50,000 with very low income, minimal assets, no home: DRO usually appropriate. The fast-track route writes off debts in 12 months with minimal cost (GBP 90 fee, often waived).

Debt level above GBP 50,000 or complex assets: Bankruptcy usually the formal route, with the IVA alternative if the borrower has the income and asset structure to support it. The IVA preserves more autonomy; bankruptcy is more restrictive but faster.

Practical action: free CONC 8 advice (StepChange, National Debtline, Citizens Advice) assesses the borrower's situation and recommends the option. The advisers can also assist with the application or negotiate with creditors. Avoiding commercial debt management companies preserves more of the available payment for creditors.

Negotiating with creditors directly

Before formal solutions, some borrowers can negotiate directly with creditors. Many creditors will agree to reduced payments, frozen interest, or extended terms for borrowers in temporary difficulty. The CONC 7 forbearance rules encourage this. A polite, honest letter explaining the situation and proposing a specific arrangement is the starting point.

Where negotiations succeed, the arrangement is informal but workable for short-term recovery. Where they fail or the situation is more serious, the formal solutions (DMP, IVA, DRO, Bankruptcy) provide structured alternatives.

A 'token payment plan' is a specific informal arrangement where the borrower pays a nominal amount (GBP 1-5 a month) while genuinely unable to pay more. Most creditors will accept token payments for 6-12 months while the borrower addresses the underlying issue. This avoids default registration in some cases.

Worked example: a borrower has a temporary income gap due to redundancy with new role starting in 3 months. They write to each creditor explaining the situation, asking for a 3-month payment holiday with interest freeze. Most creditors agree; the borrower resumes normal payments in month 4. No default registration; credit file impact minimal.

Frequently asked questions

Which debt solution is best for me?

Depends on debt level, income, asset position. DMP for smaller debts with regular income (typically under GBP 7,000). IVA for moderate debts with assets to protect (GBP 7,000-50,000). DRO for low-income, minimal-asset borrowers with debts under GBP 50,000. Bankruptcy for larger debts or where the borrower needs a clean break. Free advice from StepChange or National Debtline assesses the specific situation.

How long does each debt solution last?

DMP typically 5-15 years to clear all debts. IVA 5-6 years with writeoff at end. DRO 12 months with writeoff. Bankruptcy 12 months restriction period with discharge at end. Credit file impact: 6 years for IVA, DRO and bankruptcy from start date. DMP itself not on file but underlying defaults are visible for 6 years from default date.

Will I lose my home in bankruptcy?

Possibly. The trustee in bankruptcy can sell a property to realise equity for creditors. Where the home has significant equity, sale is likely. Where equity is small or negative, the home may be transferred to a partner or returned. Joint owners have specific protections; co-owners can apply to court to preserve the home. IVA typically preserves the home better than bankruptcy.

Should I use a commercial debt management company?

No. Use a free CONC 8 charity (StepChange, National Debtline, Citizens Advice). Commercial DMCs charge fees that reduce the effective payment to creditors. The legal outcomes are the same; the cost is the difference. Free advice is impartial and confidential. CONC 8 requires regulated lenders to provide a route to free advice.

Can I get debt help while still working?

Yes. All four formal options (DMP, IVA, DRO, Bankruptcy) accept working borrowers. DMP and IVA require regular income. DRO requires very low surplus income (under GBP 75 a month) but employment is permitted. Bankruptcy permits employment with some professional restrictions during the 12-month period. Discussing the situation with a free debt adviser identifies which option fits the working pattern.