If you’re struggling with debt and looking at the options available, you’ve probably come across IVAs and DROs. Both are formal insolvency options that can write off debt, but they’re designed for completely different financial situations.
Your income, assets, and debt level will determine which option you qualify for. When it comes to choosing between an IVA or a debt relief order, one isn’t necessarily better than the other – finding the right solution depends entirely on your individual circumstances.
IVA vs DRO: At a Glance
| IVA | DRO | |
| Minimum debt | £7,000 (typically) + | No minimum |
| Maximum debt | No limit | £50,000 |
| Duration | 5-6 years | 12 months |
| Monthly payments | Yes, based on disposable income | None |
| Setup cost | Taken from monthly payments | No charge |
| Income requirement | Regular income needed | Low income only (less than £75 surplus per month) |
| Asset limit | No specific limit | £2,000 maximum (excluding vehicle worth up to £2,000) |
| Homeowners | Can enter an IVA | Cannot own property |
| Credit impact | 6 years on credit file | 6 years on credit file |
| Debt written off | Remaining balance after final IVA payment** | All debts included in the DRO application after 12 months |
What is an Individual Voluntary Arrangement (IVA)?
An IVA is a formal agreement between you and your creditors to repay what you can afford – usually over five or six years. It’s set up by a licensed Insolvency Practitioner, who calculates your monthly payment based on your income and essential expenses.
Once your creditors agree to the IVA proposal (at least 75% by debt value needs to approve), you make one monthly payment that gets divided between them. Interest and charges freeze on the unsecured debt included in the arrangement, and creditors can’t take legal action or chase you for the money anymore.
At the end of the term, any remaining debt gets written off*. To apply for an IVA, you’ll need to:
- Owe at least £7,000 (in most cases)
- Have a regular income from pension, employment (including self-employment) and other sources
- Have disposable income (after essential expenses)
- Owe to a minimum of two creditors
Homeowners can enter into an IVA without releasing any equity from their property.
IVAs are legally binding, which means you’re protected from creditor action like visits from debt collectors or bailiffs, but you also need to stick to the terms. Missing payments towards your debts can put the arrangement at risk.
What is a Debt Relief Order (DRO)?
A DRO is designed for people on low incomes with minimal assets who can’t afford to repay their debts. It freezes your debts for 12 months, and if your situation hasn’t improved by the end of that period, the debts are written off completely.
To get a DRO:
- You can’t owe more than £30,000
- You need to have less than £75 per month in disposable income after essential bills
- Your assets can’t be worth more than £2,000
- You can own a vehicle worth up to £4,000, but this doesn’t count towards the limit
Homeowners can’t apply for a debt relief order – if you own property, even with a mortgage, you won’t qualify. You also can’t have had another DRO in the past six years or an IVA or bankruptcy order in the past six years.
There is no upfront cost to apply for a DRO, however, you will need to apply through an Approved Intermediary, who will submit the application on your behalf. Once your application has been accepted, during the 12-month DRO period, creditors with debt included in the order can’t chase you for payment. As long as you stick to the terms of the DRO and your circumstances don’t change, the DRO lasts 12 months before the debts will be written off.
Like an IVA, a DRO appears on your credit report for six years from the date it’s approved.
The Difference Between an IVA and a DRO
Who They’re For
The biggest difference is who they’re designed for. IVAs work for people with a regular income who can afford to make monthly payments, while DROs are for those with very low incomes who can’t afford to pay anything towards their debts.
Eligibility Requirements
DROs have much stricter eligibility criteria. You can’t owe more than £50,000, own a home, or have assets worth over £2,000. With an IVA, there’s no maximum debt limit; homeowners can apply, and there’s no cap on what they can own. Both options cover most types of debt, including credit cards, payday loans, and overdrafts.
Duration and Payments
A DRO lasts just 12 months with no payment towards your debts required, whereas an IVA typically runs for five to six years with monthly contributions. However, a DRO only works if your financial situation stays the same – if your income increases or you come into money during those 12 months, the DRO can be revoked.
Flexibility
IVAs offer more flexibility – if your circumstances change during the arrangement, the payment amount can be reviewed and adjusted. With a DRO, any significant improvement in your finances means the order gets cancelled, and you’re back to owing the full debt.
Cost
There is no charge to apply for a DRO. IVA fees are built into your monthly payments, so whilst there’s no upfront charge, fees are drawn from the money you pay in.
Impact on Credit
Both an IVA and a DRO will have an impact on credit. They’re both visible on your credit file for six years, which will affect your credit score and make it harder to get credit during that time. The record will stay on your credit report regardless of whether you complete the arrangement early or stick to the full term.
Deciding between an IVA or DRO: Which debt solution is right for me?
Neither option is automatically better – whether a DRO is better than an IVA depends entirely on your circumstances.
Speaking to a professional or a debt advice firm can help you understand which solutions are appropriate for your situation and make sure you’ve made the right decision. It’s also worth considering whether other debt management options might be more suitable.
An IVA may suit you if:
- You have a regular income and can afford monthly payments
- You owe £7,000 or more to multiple creditors
- You own your home (even with a mortgage)
- You have assets worth over £2,000
- Your disposable income is more than £75 per month
- You want flexibility if your circumstances change
- You need all your creditors included in the plan to stop individual collection attempts
A DRO may suit you if:
- You have less than £75 disposable income per month after essential bills
- You owe less than £50,000 in total
- You don’t own any property
- Your assets are worth £2,000 or less (excluding a vehicle worth up to £2,000)
- You haven’t had a DRO in the past six years
- Your financial situation is unlikely to improve in the next 12 months
The fact that an IVA lasts longer isn’t necessarily a drawback – it depends on your ability to make affordable monthly payments and how much debt you have.
Some people also consider a debt management plan as an alternative, which is less formal but doesn’t offer the same legal protections. Whatever route you choose, getting debt help early gives you more options and prevents your situation from getting worse.
