Question: What Is Debt Arbitration?

"My financial situation seems so bleak that I have been considering filing bankruptcy, but a friend told me I should consider something called debt arbitration first. What is it exactly?"

Debt arbitration is also known as debt settlement or negotiation, though 'arbitration' infers that a third party is handling the negotiations between the two parties (in this case the creditor and the person in debt), and debt negotiation can be handled without any outside help.

No matter what you call it, the process involves negotiating with your creditor(s) to reduce the amount of money that is owed to them. Debt arbitration is a common alternative to bankruptcy, and most creditors are willing to discuss reduced payments over the alternative - possibly getting nothing were the borrower to successfully file a Chapter 7 or 13.

Most arbitrators or negotiation companies can successfully reduce balances by about half, but there are some consequences to your credit history.

For more information about debt arbitration, please see about settlement.