Debt Relief Order vs IVA: Which is Right for You? – August 2026

Debt Relief Orders (DROs) are often overlooked but can be the perfect debt solution for people with limited means. Here’s what you need to know. If you find yourself struggling with debt, you might be considering a Debt Relief Order or an Individual Voluntary Arrangement (IVA). These are two popular options in England and Wales for managing debt, but they cater to different financial situations. Understanding which option is right for you can be crucial in alleviating financial stress and paving the way to a more manageable financial future.

Understanding Debt Relief Orders (DROs)

A Debt Relief Order is a formal debt solution aimed at helping individuals with low income, minimal assets, and relatively low levels of debt. It offers a way to write off debts that you cannot afford to repay within a reasonable time.

Eligibility Criteria for DROs

To qualify for a DRO, you need to meet specific criteria:

• Your total debt must not exceed £50,000.
• You must have less than £75 spare income each month.
• Your assets should be valued at less than £2,000.
• If you own a vehicle, it must not be worth £4,000 or more.
• You cannot own your home.

It is important to note that once you have a DRO, you cannot apply for another one for six years.

The DRO Process

The process of applying for a DRO involves working with an approved debt adviser, as you cannot self-apply. Here’s a step-by-step guide:

1. Consult a Debt Adviser: Begin by contacting an approved debt adviser who can assess your financial situation and determine if a DRO is suitable for you.
2. Gather Necessary Information: Collect all relevant information about your debts, income, and assets.
3. Application Submission: Your adviser will submit your application to the Insolvency Service.
4. Approval and Moratorium Period: If approved, you’ll enter a 12-month moratorium period during which your creditors cannot pursue you for the debts included in the DRO.
5. Debts Written Off: At the end of the 12-month period, your qualifying debts are written off.

Remember, the application process is free, as the fee was abolished in June 2024.

Benefits and Drawbacks of DROs

The primary benefit of a DRO is the potential to have your debts written off after 12 months, providing a fresh financial start. Additionally, creditors are prohibited from taking action against you during the moratorium period.

However, there are drawbacks. Your credit rating will be affected for six years, and you must adhere to strict eligibility criteria. If your financial situation improves within the 12 months, the DRO might be revoked.

Exploring Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement is a formal agreement between you and your creditors to pay off a portion of your debts over a specified period, typically five years. Unlike a DRO, an IVA can be suitable for those with higher levels of debt or those who own their home.

Key Features of IVAs

• The arrangement usually lasts for five years, or six if you need to release home equity.
• Creditors representing 75% of your debt by value must agree to the IVA.
• Fees are included within your monthly payments, not added on top.
• Homeowners can apply, but may need to release equity in the final year.

The IVA Process

Here’s how to proceed with an IVA:

1. Contact an Insolvency Practitioner: They will help draft a proposal to your creditors.
2. Proposal Submission: The proposal is presented to creditors for approval.
3. Approval by Creditors: If 75% agree, the IVA is legally binding.
4. Monthly Payments: Make agreed payments for the duration of the IVA.
5. Completion: Any remaining debts are written off at the end of the IVA.

While an IVA can help manage larger debts, it can also impact your credit rating and may require you to release home equity if you own property.

Comparing DROs and IVAs: Which One is Right for You?

The choice between a DRO and an IVA depends on your individual financial circumstances.

When to Consider a DRO

A DRO may be suitable if:

• You have a low income with less than £75 spare each month.
• Your total debts do not exceed £50,000.
• You have minimal assets and do not own your home.

When to Opt for an IVA

An IVA might be more appropriate if:

• You have a higher level of debt that exceeds £50,000.
• You own property and are willing to release equity.
• Your creditors are likely to agree to an arrangement.

Both solutions have long-term impacts on your credit score, so it is crucial to weigh the benefits and drawbacks carefully before proceeding. Consulting with a debt adviser can provide tailored advice based on your situation.

Additional Debt Solutions to Consider

Aside from DROs and IVAs, other debt solutions might suit your needs:

Bankruptcy

Bankruptcy can clear your debts but at the cost of £680 and potential loss of your home. It’s typically considered a last resort due to its severe implications on assets and credit ratings.

Debt Management Plan (DMP)

A DMP is an informal arrangement where you make reduced payments to creditors. It’s not legally binding, and creditors may not freeze interest, so you repay everything owed.

Breathing Space

Breathing Space offers temporary relief by halting creditor contact for 60 days. It’s not a debt solution but a time to seek further advice through a debt adviser.

Not Sure Which Debt Solution Is Right for You?

Every debt situation is different. The right solution depends on your income, your debts, and what you own. Our solution finder takes a few minutes and helps point you in the right direction.