DRO vs. IVA: Which Personal Debt Solution Is Right for You?
If you’re facing mounting debts and financial pressure, it’s easy to feel overwhelmed. The good news is, there are formal solutions available that can offer a way forward. For many people, that means choosing between a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA).
While both are alternatives to bankruptcy, they’re designed for very different financial situations. Understanding how each one works and what makes them suitable is key to finding the right path out of debt.
What Is a Debt Relief Order?
A Debt Relief Order is a legal form of debt relief created specifically for individuals with limited income, minimal assets, and relatively low levels of debt.
If you’re eligible, a DRO can pause your debt repayments for 12 months. During this time, your creditors can’t take enforcement action or add further interest. At the end of the year, provided your circumstances haven’t changed, your debts are written off entirely.
To qualify, you’ll need to meet certain criteria. These often include having low disposable income, no valuable assets (such as a house or car above a certain value), and debts under a specific limit. You also must not be currently involved in another insolvency process.
Because it’s designed for those in financial hardship, the cost of a DRO is minimal, much lower than that of declaring bankruptcy.
What Is an Individual Voluntary Arrangement (IVA)?
An IVA is a formal agreement between you and your creditors to repay a portion of your debts over a fixed period, usually five or six years. It’s a more flexible solution that allows you to keep hold of your home, car, or other assets, as long as you maintain your agreed repayments.
You make monthly payments based on what you can realistically afford, and during the term of the arrangement, all interest and charges on your debts are frozen. At the end of the IVA, any outstanding balances included in the agreement are written off.
Setting up an IVA requires the help of a licensed insolvency practitioner, and your creditors will need to approve the proposal, usually by a majority vote based on the amount you owe.
IVAs are particularly helpful for those with regular income who want to avoid the consequences of bankruptcy and maintain some control over their financial future.
What Are the Main Differences?
While both DROs and IVAs aim to reduce your debt burden, they’re designed for very different situations.
A Debt Relief Order is generally suited to those with little or no disposable income and no significant assets to protect. It provides a relatively quick route to debt relief with minimal ongoing involvement.
Whereas an IVA works well for people who can afford to contribute something toward their debts each month and want to avoid losing important assets, such as their home. It takes longer to complete, but it offers structured protection from creditor action during the repayment period.
Both DROs and IVAs will be recorded on your credit file for six years from the date they begin. This may affect your ability to obtain credit or secure a mortgage in the short term. However, taking steps to resolve your debts through a formal solution is often viewed more positively in the long run than continuing to struggle without a plan.
It’s also worth noting that during the life of a DRO or IVA, borrowing more money is generally restricted, and for many, that’s an important part of breaking the cycle of debt.
Are There Other Options?
If you’re not eligible for a DRO and an IVA doesn’t seem like the right fit, there are other solutions worth exploring. Depending on your circumstances, a Debt Management Plan, Bankruptcy, or informal settlements might offer an alternative route to financial stability.
Each comes with its own implications, so getting tailored advice is essential before making a decision.
Finding the Right Path Forward
Choosing the right debt solution is about more than just ticking eligibility boxes, it’s about understanding how each option fits your lifestyle, financial goals, and long-term wellbeing.
Whether you’re looking for a clean slate through a DRO or need the structure and protection an IVA offers, professional advice can help you make an informed, confident choice.
If you’re unsure which route is right for you, we’re here to help. Speak to one us today for clear, confidential guidance and start moving toward a debt-free future.