Q: Will a debt arbitration program really eliminate my debt?

A: First, it depends on what form of "debt arbitration" you're talking about.

The first, but less common, form of debt arbitration is a legal proceeding that takes place when a debtor and his creditor are unable to come to reasonable terms, and yet, for whatever reason, bankruptcy is not a viable option. In this case, an impartial third party (similar to a judge) informally hears the case and renders a decision as to how the debtor and creditor are to proceed. In most states, this process is legally binding, and thus, if the arbitrator decides you should owe nothing, then yes, your debt would be instantly eliminated. But there are two caveats: 1) The arbitrator is unlikely to determine you owe nothing / should be made to pay nothing unless your creditor has been truly egregious in his efforts to collect your debt, or the creditor lacks necessary documentation, etc. 2) In most states, the findings of a debt arbitration hearing can be challenged in a more formal court of law.

In other instances, the term "debt arbitration" is essentially a synonym for debt negotiation -- hiring a third-party professional, sometimes a lawyer, to negotiate settlement of your debts with your creditors. In this case, debt arbitration is unlikely to "eliminate" your debt -- in fact, it's impossible. This form of debt arbitration, after all, is a negotiation, and you can't negotiate down to zero. It is possible for a debt arbitrator to reduce your debt by as much as 90% -- if your creditor feels he has no reasonable chance of collecting more and you might declare bankruptcy -- but 50%-60% savings are more common.

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