IVA is the name given in the United Kingdom to the renegotiation of the terms of a debt. In the United States the name is not used, but the principle is the same. It is an agreement between creditor and debtor for the settling of an outstanding debt in a manner different from the original terms of the loan agreement. This is often times because the debtor has become delinquent and is struggling to pay.
In United Kingdom there are Licensed Insolvency Practitioners who mediate such agreements in a very formal process. The United States does not have such a process. But there are financial advisors, lawyers and debt counselors that act in much the same way.
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These agreements are an effort to help both parties, creditor and debtor, reach a compromise. It is an effort to avoid total loss for either party. Though it does not result in the perfect scenario for either, it is of benefit to both. Typically an agreement is reached to restructure the terms for repayment and often the creditor will reduce the debt.
The agreements sometimes lower the interest rate, but not in every case. Each agreement is different.
The debtor is benefited because he now has terms to pay back the debt that he can manage. Also, he no longer has the fear of legal action being taken to collect the debt, wages garnished or foreclosure on his home. This gives of measure of peace of mind to the debtor.
There are benefits for the creditor also. Even though the original amount of the debt is reduced, normally payments are spread out over a longer period of time. That means that even if the interest rate is lowered over time the lender will be paid back more money than under the original agreement. At times creditors agree to accept 25 to 50 percent less than the original amount of the debt.
This may seem like a huge loss for the creditor. However, if the debtor really cannot pay under the original terms, and the creditor has the choice of taking less or getting nothing if the debtor is forced into bankruptcy, it is a the better alternative. Also it can help the creditor avoid taking expensive legal action against the debtor.
Besides having lower monthly payments and lower interest charges, the greatest benefit for the debtor is staying out of bankruptcy. Bankruptcy puts a horrible black mark on your credit for years and should be avoided if at all possible.
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