This guide explains the main differences between an IVA and a DRO, who can qualify for each solution, how your debts and assets are treated, and what you should consider before making a decision.
On this page
- IVA vs DRO at a glance
- What is an IVA?
- What is a Debt Relief Order?
- Who can qualify for a DRO?
- Who may be suitable for an IVA?
- IVA vs DRO: payments
- IVA vs DRO: what happens to your debts?
- IVA vs DRO if you own your home
- IVA vs DRO and your car
- IVA vs DRO and your credit file
- How much does an IVA or DRO cost?
- Is an IVA or DRO better?
- Questions to ask before choosing
- Frequently Asked Questions
IVA vs DRO at a glance
The biggest difference between an IVA and a DRO is that an IVA is based on your ability to make payments, whereas a DRO is intended for people who have very little spare income and limited assets.
| Feature | IVA | DRO |
|---|---|---|
| Who is it for? | People who can afford regular payments towards their debts | People with low spare income and limited assets who meet the eligibility rules |
| Debt limit | No fixed maximum for an IVA in the same way as a DRO | Qualifying debts must be less than £50,000 |
| Monthly payment | Usually required | No monthly payments |
| Typical duration | Usually 5 or 6 years | 12 months |
| Cost | Professional fees are normally taken from IVA payments | No application fee |
| Homeowners | An IVA may be available | You generally cannot get a DRO if you own your home |
| Assets | Assets are assessed as part of the IVA | You must generally have less than £2,000 of assets |
| Car | Your vehicle is assessed as part of your circumstances | You must generally not own a vehicle worth £4,000 or more |
| Credit file | Usually 6 years from the start of the IVA | 6 years |
The exact rules and suitability of either solution depend on your circumstances. A DRO has strict eligibility criteria, while an IVA involves an assessment of whether you can afford the proposed payments and whether creditors are likely to accept the arrangement.
What is an IVA?
An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors.
You normally make an agreed monthly payment to an Insolvency Practitioner, who distributes the money between your creditors. An IVA can allow you to deal with multiple unsecured debts through one payment rather than making separate payments to each creditor.
Under the current IVA Protocol, protocol IVAs are normally proposed for 60 months. This can be 72 months where the relevant beneficial interest in a family home is £10,000 or more.
Once an IVA has been approved, creditors included in the arrangement are generally bound by its terms.
However, an IVA is a long-term commitment. Your income and expenditure are normally reviewed during the arrangement, and you must tell your Insolvency Practitioner about relevant changes in your financial circumstances.
Read our guide to what an IVA is for more information.
What is a Debt Relief Order?
A Debt Relief Order is a formal debt solution designed for people who have relatively low income, limited assets and qualifying debts within the DRO limits.
If you qualify, you do not make monthly payments towards the debts covered by the DRO. The DRO normally lasts for 12 months. If your financial circumstances have not changed in a way that affects the order, the qualifying debts are generally written off when the DRO period ends.
A DRO is only available to people who meet the eligibility conditions. You cannot apply for one yourself; an approved debt adviser must make the application for you. There is no application fee for a DRO.
Our guide to Debt Relief Orders explains the rules in more detail.
Who can qualify for a DRO?
DRO eligibility is based on specific financial and personal circumstances.
Under the current rules, you will generally need to:
- owe less than £50,000 in qualifying debts
- have less than £75 a month left after reasonable household expenses
- have less than £2,000 in assets
- not own a vehicle worth £4,000 or more
- meet the relevant residence or employment conditions in England and Wales
- not have had another DRO within the previous six years.
You must also meet the other conditions that apply to a DRO. For example, a DRO is generally not available if you own your home.
The £50,000 limit applies to qualifying debts rather than necessarily every debt you may owe, because some types of debt are treated differently under insolvency law.
If your income, assets or debts are above the relevant limits, you will not qualify for a DRO and other debt solutions will need to be considered.
Who may be suitable for an IVA?
An IVA does not have the same strict income and asset thresholds as a DRO.
An IVA may be considered where you have enough disposable income to make regular payments towards your debts but cannot realistically repay everything within a reasonable period.
The current IVA Protocol says that a person suitable for a protocol IVA will generally have regular sustainable income, multiple debts totalling £7,000 or more, uncomplicated assets and sufficient income to make the proposed payments. A protocol IVA should also not be used where the person is eligible for a DRO.
This distinction is important. If you have very little spare income and limited assets, you should ask an adviser to check whether you qualify for a DRO before committing to an IVA.
IVA vs DRO: payments
This is one of the biggest differences between the two solutions.
IVA payments
With an IVA, you normally make regular monthly payments based on what you can reasonably afford after your household expenditure has been taken into account.
Your income and expenditure are normally reviewed each year. If your circumstances change, your payments may increase or decrease depending on the circumstances and terms of your arrangement.
DRO payments
You do not make monthly payments towards your qualifying debts under a DRO.
However, you must continue to meet the conditions of the DRO during the 12-month period. A significant improvement in your financial circumstances can affect the order.
This means that a DRO can be considerably less demanding financially than an IVA if you meet the strict eligibility requirements.
IVA vs DRO: what happens to your debts?
Both solutions can provide protection from creditors, but they work differently.
With an IVA, you make the agreed contributions for the duration of the arrangement. Once you successfully complete the IVA and receive your certificate of completion, the debts covered by the arrangement are generally released in accordance with its terms.
With a DRO, you do not make payments towards the qualifying debts. If the DRO completes successfully, the qualifying debts covered by the order are generally written off.
Not every type of debt is necessarily dealt with in the same way, so you should establish exactly which of your debts would be included before choosing either solution.
IVA vs DRO if you own your home
Your home can make a significant difference to the options available to you.
A DRO is generally not available if you own your home.
An IVA may be available to a homeowner. Under the current IVA Protocol, the family home is not realised as part of the protocol IVA, but the level of beneficial interest can affect the length of the arrangement. Where the relevant beneficial interest is £10,000 or more, the standard protocol term is normally extended from 60 to 72 months.
This does not mean that every homeowner will automatically qualify for an IVA. Your overall income, expenditure, debts and circumstances still need to be assessed.
For more information, see our guide to IVAs and your home.
IVA vs DRO and your car
Your car can also affect which debt solution is available.
Under the current DRO rules, you will generally not qualify if you own a vehicle worth £4,000 or more. There are specific rules concerning vehicles and assets, so the value and circumstances of your vehicle need to be assessed as part of the application.
An IVA does not have the same fixed £4,000 vehicle limit. Your car and any finance agreement will instead be considered as part of the wider assessment of your financial circumstances.
If you have car finance, it is particularly important to explain the agreement to your adviser before choosing a debt solution.
See our guide to IVA and car finance for more information.
IVA vs DRO and your credit file
Both an IVA and a DRO can have a significant effect on your ability to obtain credit.
An IVA normally remains on your credit file for six years from the date it starts. A DRO also remains on your credit record for six years.
Both solutions are also recorded on the Individual Insolvency Register. A DRO is removed from the register three months after it ends, while an IVA is normally removed three months after the IVA ends.
This can affect applications for credit and may also be relevant when applying for certain financial products or services.
How much does an IVA or DRO cost?
IVA costs
An IVA involves professional fees for the Insolvency Practitioner. Under the current IVA Protocol, these fees are normally included within your IVA payments rather than being charged upfront. The fees should be explained before you agree to the arrangement.
This means you should always look at the total cost and terms of an IVA rather than simply comparing monthly payment amounts.
DRO costs
There is currently no application fee for a DRO. You must apply through an approved debt adviser rather than applying directly yourself.
This makes a DRO substantially cheaper than an IVA for someone who meets the eligibility requirements.
Is an IVA or DRO better?
Neither solution is automatically better. The right option depends on your circumstances.
A DRO may be more suitable if:
- you have less than £75 a month of spare income
- you have limited assets
- your qualifying debts are below £50,000
- you do not own your home
- you meet the other DRO eligibility requirements.
An IVA may be more suitable if:
- you have enough disposable income to make regular payments
- you do not qualify for a DRO
- you have more assets than the DRO limits allow
- you own your home
- you need a formal agreement with creditors and can maintain the required payments.
If you qualify for a DRO, it is particularly important to understand why an IVA is being recommended instead. The current IVA Protocol specifically identifies eligibility for a DRO as a reason a protocol IVA may not be suitable.
What should you ask before choosing an IVA or DRO?
Before agreeing to an IVA, ask the adviser to explain all the debt solutions that could apply to your circumstances.
Useful questions include:
- Do I qualify for a Debt Relief Order?
- If I do not qualify, why not?
- Which of my debts would be included?
- How would my home or other assets be treated?
- What happens to my car?
- How much would I have to pay each month under an IVA?
- How long would the IVA last?
- What are the total IVA fees?
- What happens if my income changes?
- What happens if I cannot maintain the payments?
Getting this information before committing can help you avoid entering a debt solution that is unsuitable for your circumstances.
Frequently Asked Questions About IVA vs DRO
IVA or DRO: Which Should You Choose?
The most important thing is not to choose an IVA or DRO simply because it has been recommended to you. Your income, debts, assets, home ownership and ability to make payments all affect which solution may be appropriate.
If you have very little spare income and few assets, check whether you qualify for a DRO before considering an IVA. If you do not meet the DRO criteria but can afford regular payments, an IVA may be one of the options worth considering.
You can also compare an IVA with other debt solutions in our guide to IVA vs DMP, or learn more about the pros and cons of an IVA.
If you are considering an IVA, our IVA calculator can give you an initial indication of whether an IVA may be appropriate based on your circumstances.
