The purpose of an IVA or Individual Voluntary Arrangement is really to strike a balance between creditor and debtor. If you can’t manage to pay your debts as per the agreements you originally took out, an IVA can help you to avoid bankruptcy.
Through an IVA, you can agree to pay your creditors a set amount over a fixed period, after which they agree they will no longer pursue you for these debts (providing you keep up with the IVA payments throughout the period specified).
Although this almost certainly means that the creditors receive back less than what the original credit agreements contained, it does mean that they are likely to recoup more of the outstanding borrowing than if you were then to become bankrupt.
An IVA is therefore a way to provide you with the opportunity to clear your debts in the long term and for your creditors to gain back at least some of what was borrowed. If your financial situation is out of control, an IVA can help to bring it back under control and set you back on the path to financial health down the line.
The practise of agreeing to pay back your creditors at a rate that is less than that outlined in your credit agreements etc, is actually something that you can also do on an informal basis. However, by using an IVA instead, you also have a degree of legal protection that you do not necessarily have with an informal arrangement.
Using an IVA therefore gives you the security of knowing that, providing your creditors agree to the arrangement, and you then stick to it, you are protected from further legal action regarding these debts.
IVAs therefore act as a kind of mediation between you and your creditors, protecting your interests.