Debt Arbitration: A Friendly Guide
Debt can feel overwhelming. When bills pile up and you fall behind on payments, it’s easy to feel stressed and alone. But you’re not alone – millions of Americans struggle with debt. The good news is there are solutions, and we’re here to help walk you through them in a friendly, down-to-earth way.
What is debt arbitration?
Debt arbitration, also called debt negotiation or settlement, is a process where a neutral third party – an arbitrator – helps you and your creditors come to an agreement on a reduced payoff amount. Instead of paying the full amount owed, you pay a lesser negotiated amount and the rest is forgiven. It can be a great option for resolving debt outside of bankruptcy.Arbitration is usually faster, less formal, and less expensive than going to court. And it avoids the long-term damage to your credit that bankruptcy causes. The key is working with an experienced arbitrator who knows the system and looks out for your best interests.
When is debt arbitration a good option?
Debt arbitration can make sense if:
- You have unsecured debt like credit cards, medical bills, or personal loans
- You can’t realistically pay the full amount owed
- You want to avoid bankruptcy
It works best for people with steady income who have gotten in over their heads but can afford a reduced payoff amount. If you have assets like a house or car at risk, bankruptcy may be a better option to protect them.
How does the debt arbitration process work?
Here are the basic steps:
- You stop paying your creditors. This shows them you can’t afford the full amount and gets their attention. But beware – it also damages your credit and creditors may sue.
- A arbitrator reaches out to your creditors. They negotiate reduced payoff amounts, usually 40-60% less than what you owe.
- You make monthly payments to a special account. This builds up the funds to pay your creditors. It takes 12-48 months usually.
- The arbitrator distributes payments to your creditors. Once enough is accumulated, they pay your creditors the reduced settlement amounts.
- The remaining debt is forgiven. Your accounts are closed and collection calls stop. You’re debt-free at last!
What are the pros and cons of debt arbitration?
- Settle debt for less than you owe
- Avoid bankruptcy and foreclosure
- Stop collection calls and lawsuits
- Pay off debt faster than credit counseling plans
- Usually less expensive than bankruptcy
- Damages your credit initially when you stop paying
- No guarantee creditors will accept reduced payments
- Debt may be taxable as income if forgiven
- Upfront and monthly fees to arbitrators
- Risk of getting sued before debts are settled
So debt arbitration can be great, but it has downsides. Make sure you understand the risks before starting the process. And work with a reputable arbitrator you can trust.
Tips for success with debt arbitration
Follow these tips to boost your chances of resolving debt through arbitration:
- Pick the right debts – Focus on unsecured debts you have little chance of paying in full. Leave out secured debts like mortgages.
- Research arbitrators – Find an accredited one with a track record of good settlements. Avoid shady operators.
- Be disciplined – Stick to your monthly savings plan. It takes 12-48 months usually to settle all your debts.
- Communicate – Keep all paperwork and records. Stay in touch with your arbitrator and creditors.
- Don’t rack up more debt – Resist the urge to use credit cards while in the program. Live frugally.
- Consult a tax pro – Forgiven debt may be considered taxable income. Understand the implications.
There is hope – you can resolve your debt!
Debt feels overwhelming but there are solutions, including debt arbitration. The key is acting quickly, before creditors sue or your credit score craters. Reach out today to discuss your situation – we’re here to help with compassion and confidentiality. You can get back on track financially – don’t wait!