Debt can be a scary thing for any consumer. Many people find themselves in debt every year for various reasons. While some may lose their jobs, others get sick or injured and cant work. Sometimes, people just end up over-extending themselves and not realizing it until a pile of bills are staring them in the face.
Regardless of the cause of a debt, there are ways to get yourself out of financial trouble. Bankruptcy and debt negotiation in the form of arbitration are two options people have when trying to get their finances back in order.
Despite big promises, neither of these options completely erases a person''s debt immediately. They do, however, offer many people relief to money problems by allowing a debtor to pay only a percentage of the amount they actually owe or to pay their debts differently then originally agreed.
The downside of filing for bankruptcy or undergoing debt negotiations is that they both end up on your credit report. A debt negotiation will show up on your credit report as "paid," meaning you opted for a settlement or other payment method. Bankruptcy shows up on your credit report as "defaulted."
In some cases, one or more parties in a dispute decide not to battle it out in court. Instead, they decide to let one or more neutral parties decide how the debt or bankruptcy will be worked out. This process is called arbitration. While using arbitration for debt settlement can be pre-determined in a contract, it can be forced onto the debtor by creditors or the court.
Many credit card agreements and other contracts have arbitration agreements in place to make sure the company gets back as much money as possible.
One of the big advantages of using arbitration during debt negotiation is that it isnt a matter of public record, unlike bankruptcy. It will also help your credit rebound much faster than it would if you had declared bankruptcy or otherwise defaulted on your loan.
The downside to using arbitration is that lenders are normally saved from losing a case entirely. It also takes away the consumers right to have his day in court if he wants it.
Arbitration also allows for less legal maneuvering, which can be good or bad for bankrupt person, depending on the situation. For example, while this means creditors have fewer options to drag the process out and get their way, so do you.
The best way to avoid arbitration during bankruptcy is to never sign contracts with arbitration clauses. However, if a contract must be signed, arbitration can be avoided if the arbitration clause includes stipulations that are unenforceable. This would throw out the entire clause. Some of these unenforceable elements are:
A consumer can also avoid arbitration if he can prove that the claim is exempt under the Federal Arbitration Act.
Dellutri, Carmen (2007).Bankruptcy in Florida: What is Arbitration? Retrieved April 5, 2008, from the Bankruptcy Law Network Web site: http://www.bankruptcylawnetwork.com/
Fielding, Michael D. (2007).How to Avoid Arbitration in Bankruptcy. Retrieved April 5, 2008, from the BNET Business Network Web site: http://findarticles.com/p/articles/mi_qa5370/is_200707/ai_n21293784.
Greer, Brian E. (2002).When the Federal Arbitration Act and the Bankruptcy Code Collide. Retrieved April 5, 2008, from the Jones Day Web site: http://www.jonesday.com/pubs/pubs_detail.aspx?pubID=1595.
Lower My Bills, Inc. (n.d.).Debt Negotiation and Arbitration. Retrieved April 5, 2008, from the LowerMyBills.com Web site: http://www.lowermybills.com/tipsadvice/debt-negotiation.jsp.
Sherk, Wendell (2007).Can a Creditor Force Me Into Arbitration During Bankruptcy? Retrieved April 5, 2008, from the Bankruptcy Law Network Web site: http://www.bankruptcylawnetwork.com/2007/07/31/can-a-creditor-force-me-into-arbitration-during-bankruptcy/.