IVA Vs Bankruptcy Vs DRO: Which Is Right For You?
In this comprehensive guide we compare IVAs, DROs and declaring bankruptcy as personal debt solutions, plus more informal alternatives such as debt management plans.
Summary: IVAs, DROs, bankruptcy and other options
- An Individual Voluntary Arrangement (IVA) is a legally binding agreement with creditors to repay all or part of your debts through affordable contributions, usually over five or six years.
- A Debt Relief Order (DRO) may be available if you owe less than £50,000, have limited assets, no vehicle worth £4,000 or more and less than £75 of spare income each month after normal household expenses.
- Bankruptcy can deal with most debts you cannot repay, but it may affect your home, possessions, bank account, income and ability to act as a company director.
- The right option depends on many factors, so you should seek advice from an appropriate debt adviser or licensed insolvency practitioner before choosing a formal debt solution.
IVA meaning: What is an IVA?
It is an Individual Voluntary Arrangement, a legally binding agreement with your creditors where you agree to pay off all or as much of your debts as possible.
There is no universal minimum debt level for an IVA, although protocol IVAs are generally intended for people with multiple debts totalling £7,000 or more. You will usually need a regular, sustainable income and enough disposable income to make repayments.
It usually lasts 5 years. It can last 6 years if you have a beneficial interest worth £10,000 or more in a family home, under the IVA Protocol 2025. For more details, here is our article on how long an IVA lasts and why.
You make regular monthly payments to an insolvency practitioner. Your insolvency practitioner divides and distributes the monthly repayments to your creditors.
The amount you pay back depends on your circumstances, such as your income, expenditure, living arrangements and the debt total.
IVAs are an option for many types of unsecured debt, including:
- Credit card debt
- Overdrafts
- Personal loans
- Payday loans
- Utility bill arrears
- Council tax arrears
- Income tax and national insurance arrears
- Debts to family and friends
However, an IVA is not usually an option for some types of debt including mortgages, secured loans, student loans, child support arrears and court fines.
What is the IVA register?
There is an IVA register, part of the Individual Insolvency Register. This is a public database managed by the Insolvency Service containing details of the people with an IVA or other individual debt solutions.
It includes your:
- Name
- Date of birth
- Date your IVA was approved
If you enter into an IVA, your details will be added to the Individual Insolvency Register. The entry is normally removed 3 months after the IVA ends. For more details, read our guide on how long you stay on the Insolvency Register for.
IVAs affect your credit rating for 6 years from the date the arrangement starts. You also need to keep to a budget that you’ll agree with your insolvency practitioner for the full term of your IVA.
If you miss any payments the agreement will be extended to cover the arrears.
DRO meaning: What is a DRO?
It is a Debt Relief Order, a formal insolvency procedure that could be an option for you if you owe less than £50,000 and have relatively low-value assets.
It used to be £30,000 but the government raised the limit to £50,000 on 28 June 2024. There also used to be a £90 application fee but in April 2024, the government abolished it.
You generally cannot qualify for a DRO if you own your home. To be eligible, your other circumstances must be as follows:
- You have savings or assets worth less than £2,000 in total
- You do not own a vehicle worth £4,000 or more
- You have less than £75 of spare income each month after paying normal household expenses
- You are not currently subject to an IVA, interim order or bankruptcy
- You have not had a DRO approved within the previous six years
- You have lived or worked in England and Wales within the last three years
You cannot apply for a DRO yourself. An approved debt adviser, such as an insolvency practitioner, must assess your circumstances and complete and submit the application for you.
Moreover, a debt relief order is not the right option for all circumstances. Experienced advisers can help you find other solutions if required.
A debt relief order typically lasts for 12 months. During this time, if your circumstances change – for example, if there’s an increase to your regular income, or you receive valuable goods – you must tell your approved intermediary or the Insolvency Service, as appropriate.
During the 12-month DRO period, you normally stop paying the qualifying debts listed in the order. If the DRO is not revoked, those listed debts are normally discharged when the period ends.
DRO restrictions
If you have a DRO, it will usually remain on your credit reference file for 6 years from the date it is approved.
Under a debt relief order, you cannot:
- Act as a director of a company, or create, manage or promote one without the court’s permission
- Borrow more than £500 without informing the lender about your debt relief order
- Apply for another debt relief order within six years of the date the current one was approved
- Write a cheque if you know there are insufficient funds to cover it
- Open a bank account without telling the bank or building society about your DRO
Breaking the restrictions can lead to an extension called a Debt Relief Restrictions Order, which lasts between two and 15 years. If you breach the restrictions, or your conduct before the DRO was dishonest or worsened your debt situation, the restrictions may be extended.
As with an IVA, there are some debts that a DRO cannot cover. These include student loans, child maintenance and other family-proceedings debts, secured debts, criminal court fines, Social Fund loans, certain damages and unpaid TV licence fees.
During the 12-month debt relief order period, you still continue to pay bills and other regular commitments.
The Individual Insolvency Register includes details of current DROs, and the entry is normally removed three months after the DRO ends.
For more details, read our full guide on debt relief orders.
Bankruptcy meaning: What is bankruptcy?
Bankruptcy is when an individual has debts they are unable to repay. It’s important to explore other options you may have to manage your debts when you owe money before considering it.
However, voluntarily applying for bankruptcy when you cannot pay your debts gives you more control over what happens next.
To apply for bankruptcy, there’s a fee to pay of £680 which includes a £550 deposit and £130 application fee.
You can also be made bankrupt if your creditors have already tried to reclaim your debt – for example, via a county court judgement – but you’ve either:
- Failed to repay debts of £5,000 or more
- Given inaccurate information to get an IVA
- Broken the terms of your IVA
If the adjudicator agrees that an individual should be made bankrupt, they issue a bankruptcy order. An official receiver may request an interview, to learn more about the circumstances behind the bankruptcy.
Bankruptcy appears on credit reports for 6 years. Other bankruptcy restrictions include:
- You can no longer serve as a limited company director or shadow director
- Your bank accounts are frozen
- If you borrow more than £500, you must inform the lender about the bankruptcy
- Your assets can be seized and used to repay your debts
Bankruptcies are usually discharged after 12 months, releasing individuals from the debts and restrictions, but repayment contributions to creditors from seized assets can last three years.
For more details, read our guides explaining what bankruptcy is and how to declare bankruptcy.
Other personal debt options
There are other options for dealing with your debts, as per government guidance.
These include:
- Breathing Space: also known as the Debt Respite Scheme, this is not an insolvency solution or payment holiday, but it provides up to 60 days of temporary protection from creditor action. If you get it, you can use this time to seek advice and make a repayment plan, but you still need to make the debt repayments. You cannot apply for it if you have an IVA or DRO already.
- Debt Management Plan (DMP): this is an informal arrangement that helps you repay unsecured debts, such as credit cards, overdrafts and personal loans, at a rate you can afford. You usually make one monthly payment to a provider, which distributes the money among your creditors and may negotiate reduced or frozen interest and charges. However, this does not provide the legal protections of a formal insolvency procedure.
- Administration orders: this is a court-managed repayment arrangement that lets you repay your debts through one affordable monthly payment. You may be eligible if you have at least two debts, owe less than £5,000 in total and have at least one unpaid CCJ or High Court Judgment against you.
FAQs
What’s the main difference between an IVA, bankruptcy and a DRO?
An IVA is a formal repayment plan you agree with your creditors, usually over five or six years.
Bankruptcy can clear you from most debts but certain liabilities are excluded and it has a bigger impact on your assets and credit file.
A DRO is for people with relatively low debts, limited assets and little spare income. It normally does not require payments towards the debts included in the DRO, although ordinary household bills and excluded debts still need to be paid.
Which is easier to qualify for, an IVA or a DRO?
A DRO has stricter eligibility rules because you’ll usually need debts under a set threshold, minimal savings and a low disposable income. An IVA suits people with a more regular income who can afford monthly payments, even if their total debt is higher.
Does a DRO affect my credit score as much as bankruptcy?
Both a DRO and bankruptcy normally remain on your credit file for six years, although lenders may assess the wider circumstances and details of each application differently.
Final thoughts: DRO vs IVA or bankruptcy
When you have debts you cannot repay, the right option for you will depend on your specific circumstances, however there are a few restrictions to bear in mind.
For example, DROs are not usually an option if you own your own home or have debts of £50,000 or more.
In short, with an IVA you can avoid bankruptcy, giving you more control of your assets and protecting you from legal action while you make manageable payments over an agreed timeframe.
Bankruptcy is typically a last resort due to the long-term impact it can have.
If you cannot pay your debts when they fall due, or you think this may happen soon, the best approach is to speak to an insolvency practitioner without delay. They can talk you through the best options for your specific situation.
To get advice from an expert insolvency practitioner at Hudson Weir, please don’t hesitate to contact us for a no-obligation chat.
