Debt management plans, IVAs and the role of secured lending

As household budgets continue to absorb the effects of higher living costs and elevated borrowing rates, formal and informal debt solutions remain a persistent feature of the credit landscape. For brokers, this means a growing likelihood of encountering clients who are part-way through an individual voluntary arrangement or a debt management plan and who, in many cases, are also homeowners with meaningful equity.

These clients are frequently assumed to be outside the reach of secured lending altogether. In practice, the position is more nuanced. Secured lending can play a legitimate and sometimes transformative role for borrowers in debt arrangements, but only where the adviser understands how the arrangement is structured, who controls it, and what a good outcome genuinely looks like for the client.

Understanding the two arrangements

The starting point is recognising that an IVA and a debt management plan are structurally very different.

An IVA is a formal, legally binding insolvency procedure, supervised by a licensed insolvency practitioner and typically running for five or six years. Once approved, its terms bind creditors. It also appears on the insolvency register and restricts the borrower's ability to take on new credit while it runs.

By contrast, a debt management plan is an informal agreement between the borrower and their creditors, usually administered by a third party. It carries no statutory framework, register entry or formal restriction on new borrowing - although payment conduct within the plan will be visible on the credit file and assessed accordingly.

This distinction shapes everything that follows. A client in a DMP can, in principle, apply for secured credit in the ordinary way. A client in an IVA cannot proceed without engaging the arrangement's supervisor.

The role of the supervisor

Where an IVA is in force, the insolvency practitioner acting as supervisor (often loosely referred to as the trustee) occupies a central position in any secured lending transaction. Their consent is generally required before the borrower takes on new secured credit, and any capital raised to settle the arrangement must be dealt with through the correct channels.

For brokers, this has a practical implication: the supervisor should be engaged at the outset, not once an application is already in progress. Lenders operating in this space will expect to see evidence that the supervisor is aware of the proposed transaction, that any settlement figure has been formally confirmed, and that the outcome demonstrably improves the borrower's position. Applications submitted without this groundwork are a common source of avoidable delay and decline.

Full and final settlement

The most frequent scenario in which secured lending and an active IVA intersect is the full and final settlement. The borrower raises capital against their property, the supervisor puts a settlement proposal to creditors, and if it is accepted, the arrangement concludes early and often several years ahead of schedule.

The potential benefits are significant. The borrower exits the arrangement with another single structured commitment in place of the IVA, but the insolvency ends sooner, and the process of rebuilding a credit profile begins earlier. 

However, the advisory analysis needs to extend beyond the headline appeal of an early exit. Comparing the IVA payment with the new loan payment is not enough: the total cost and duration of each route matters, as does the fact that the new commitment is secured against the home and that the borrower can realistically sustain it.

The equity release clause

A related consideration is the equity clause found in many IVAs, which typically requires the homeowner to attempt to release equity (commonly in the final year of the arrangement), with the proceeds paid into the IVA for the benefit of creditors.

Borrowers in this position rarely have realistic first charge options: their credit profile and the arrangement itself generally place mainstream remortgaging out of reach. A second charge can allow the obligation to be met without disturbing an attractive existing first charge product. Where the equity test cannot be satisfied, many arrangements instead extend the payment term, so the adviser's role includes helping the client understand and compare both outcomes.

Debt management plans and consolidation

For clients in a DMP, the more common conversation is consolidation. A secured loan can replace the plan with a single commitment, often at a lower total monthly cost, and  perhaps most significantly, with a defined end date, which informal plans frequently lack.

The advisory responsibility here is well established but bears repeating: consolidation converts unsecured debt into debt secured against the client's home, and typically extends the repayment period of the debts consolidated. The recommendation must therefore rest on more than a reduction in monthly outgoings. The adviser should be able to evidence why consolidation is the right outcome for this client rather than simply an available one, and the client should understand the trade-off in plain terms before proceeding.

Payment conduct within the plan is also relevant. Consistent payments maintained over time support the case; recent or erratic conduct will attract closer underwriting scrutiny, in much the same way as any other credit commitment.

Underwriting and case presentation

Cases involving active or recent debt arrangements sit firmly within manual underwriting territory. Automated scoring is rarely capable of accommodating them, and specialist lenders will instead assess the circumstances behind the arrangement: what caused it, how the borrower has conducted themselves since, and whether the proposed transaction leaves them in a genuinely stronger position.

Submission quality therefore matters considerably. A well-packaged case will include the background to the arrangement, confirmation of the supervisor's involvement and the settlement figure where relevant, evidence of payment conduct, and a clear affordability assessment for the proposed loan. Brokers who present the full narrative up front will generally see quicker decisions than those who leave underwriters to piece it together.

Case study: 

A case was submitted where the borrowers were seeking to raise capital for home improvements while maintaining an existing Debt Management Plan (DMP) that had been in place for two years.
The broker provided both a schedule of the debts included within the DMP and a payment profile from the DMP provider, confirming that all payments had been made on time over the previous 12 months.

This information enabled the underwriter to accurately match the defaulted accounts shown on the credit search to the debts contained within the DMP, ensuring that no liabilities were double counted for affordability purposes. It also provided reassurance regarding the borrowers' creditworthiness, given their consistent payment history under the arrangement.

As a result, the application could be assessed efficiently, allowing completion to proceed without unnecessary delay.

Conclusion

A client in an IVA or a debt management plan is far from a dead end. These are borrowers who, for the most part, hit a difficult period and dealt with it responsibly. What these cases ask of the adviser is simply more: know how the arrangement works and involve its supervisor early. The rest is being confident the route chosen genuinely leaves the client better off.

Do that, and secured lending becomes what it should be in this part of the market: not lending to people despite their circumstances but lending to them because we've taken the time to understand them.