The term “arbitration” refers to a method of dispute resolution involving a neutral third party. In contrast, the term “mediator” refers to someone who merely tries to help two disputing parties reach a mutually agreeable solution. So what’s the difference? Arbitration is legally binding while mediation is not!
Arbitration is becoming very popular as a means to resolve debt disputes without the high costs associated with court battles. One area where arbitration has become extremely popular is car sales. Many automobile dealers ask you to sign an “arbitration agreement” so that in the case of any dispute concerning your purchase and warranty issues (especially expensive maintenance) you cannot use the court system to seek compensation. Instead, you must use an arbitrator and usually one selected by the car dealer.
When it comes to credit cards, loans, mortgages and many other credit-related issues, arbitration is now written into the credit contract as the primary means of resolution. Read the fine print carefully BEFORE signing any contract that requires arbitration because these contracts always favor the creditor!
However, when it comes to settling debts, arbitration can work in your favor. Whenever a debt dispute arises and court action is threatened, look over your credit contract carefully; you might be entitled to arbitration.
If you end up in court but have made “good faith” efforts to pay your debts and have records to prove your actions, you may want to ask the judge to send the case to arbitration based on your willingness to cooperate and to resolve the issue and on the collector’s unwillingness to work with you. Some judges may be inclined to send the case to arbitration when debtors demonstrate a willingness to pay but cannot meet the collector’s demands.