Role of Professional Debt Mediation in Resolving Financial Disputes

In a society where opportunities await and resources are abundant, 80% of the American population still faces the burden of debt. This unfortunate reality plagues the American public, regardless of income, financial health, or even socioeconomic status. Because of such high debt accumulation, creditors are tasked with the challenge of collecting the money and holding people accountable for what they owe. For many, the debt crisis seems like an impending doom, eager to declare bankruptcy on nearly 350 million Americans. However, there exist various mediation services that just might be able to provide solutions. 

Debt Collection and Financial Disputes

The act of collecting debt can be an overwhelming process, so creditors will hire debt collectors to recover a sum of owed money. As mentioned above, 80% of Americans are also in debt, so one can imagine just how much money creditors are accustomed to managing. The process of debt collection can often be simplified through professional debt mediation, a method of resolving issues of debt by facilitating negotiation between a debtor and a creditor. 

Debt mediation is frequently jump started by financial disputes, which are a means of holding people accountable for their issues with money, particularly when they owe it. Also known as debt disputes, they are financial issues between debtors and creditors, who both can file against each other if there is disagreement. This is when debt mediation becomes crucial, as it aims to streamline the resolution of these issues. 

Debt Mediation

Typically directed by a mediator, the procedure helps to reduce the financial and emotional burdens on both parties and eventually recover the debt that is owed. While debtors endure the headache of owing money, creditors must deal with lengthy disputes, potential legal issues, or the risk of non-payment. This is where mediators play a significant role, helping to alleviate each party of their formidable responsibilities. The process follows a stern timeline of evaluating the situation, negotiating, arriving at a settlement, and eventually resolving the debt. 

Assessment of Finances

Mediators must first assess a debtor’s financial health, as in, whether they can afford a decent portion of the debt or merely a fraction of it. Witnessing their struggles financially gives the mediator a more precise idea of how much assistance they can offer. 

Strategizing and Communicating Negotiation

Next, the negotiation phase commences, solidifying a strategy with which the mediator and debtor may come to an agreement. The negotiation will be conducive to the debtor’s financial situation, ensuring they can afford what is being negotiated. It is important to note, however, that the assistance a mediator can provide may be limited in its progress. It may be that the settlement equates to full payment of the debt, but in lumps that are prioritized from trivial to significant, similar to a payment plan. Conversely, the assistance may be copious, granting coverage of nearly the entire debt because of outstanding financial issues. 

In any case, the mediator will bring this negotiation strategy to the creditor with the intention of arriving at the most ideal, yet reasonable settlement for the debtor, according to the creditor’s realm of expectations. This way, the settlement is also ideal for the creditor. 

Settlement Strategy

The settlement strategy must be agreed upon by the creditor. In fact, creditors may decline the offer if they so choose, as they are the ones ultimately responsible for acquiring the sum of money that is owed. Mediators simply play the role of “middleman,” meaning they are present during the stages of negotiation in attempts to resolve the issue. Their objective is to reach a settlement but remain neutral at the same time. 

Resolution

In the event a creditor accepts the offer, both parties have reached a settlement and may carry out the payment plan as necessary. The resolution must be followed exactly, mainly entailing the order of payment, but may also call for specific deadlines, chunks of money, or financial assignments. These are all methods of debt recovery, which aim to lessen the burden or eliminate the debt completely.  

Benefits of Debt Mediation

Affordability 

With the help of professional debt mediators, debtors are able to avoid the costly scenario of court settlements. Mediation is fairly cost-effective and works outside the courtroom, reducing the financial stress that would otherwise be caused by litigation. 

Simplicity and Efficiency 

The process of mediation also takes far less time than a court settlement. This makes for a quicker, more efficient means of resolving the financial burden on each party involved. Additionally, mediators are usually easy to work with, as their primary goal is to achieve the best results possible for debtors and creditors alike. 

Flexibility

Not only will a mediator act swiftly and proactively; but they will also act in the best interest of their debtors and come up with the most convenient plan moving forward. They will cater their assistance towards debtor affordability, reasonable time frames, and ultimately becoming debt-free. If, for any reason, certain payment plans are not possible, mediators and the process of mediation, as a whole, allow for reasonable adjustments. In fact, it is a mediator’s responsibility to customize their services to match the debtor’s needs and help to find solutions. 

Customized Solutions

Customized solutions are methods of debt payment tailored to a debtor’s needs, financial status, and affordability. Similar to the flexibility with which mediators work, a customized solution provides debtors an opportunity to pay back their debt in a way that works for them. It is irrational to think debtors can magically find the money to pay everything off, especially when they owe a large sum but struggle financially. 

Relief from Settlements 

In most cases, the settlement that a debtor and their mediator come to will alleviate much of the financial burden that the debt was causing. This brings relief from the emotional stress that inevitably follows. Essentially, professional debt mediation offers a win-win situation. Debtors will eventually be able to pay off their debt, and creditors will finally recover it, leading to great relief for everyone involved. 

Many debt mediation services are available to perform all of the steps above for you if the debt is an ongoing personal issue. While they are required to act in correspondence with litigation, they can still help avoid it by mediating neutrally between a party in debt and a collection agency or creditor party and finding the best possible solutions that helpfully affect the outcome of the debt recovery.

FAQs

• What is professional debt mediation?

  Professional debt mediation is the process of reaching a settlement between a debtor (the party who owes the debt) and a creditor (the party attempting to recover the debt) after negotiating a resolution. A mediator, or a neutral third-party representative, helps to arrive at these resolutions, which include payment plans, timelines, deadlines, and chunking the sum of money that is owed.

• Does debt mediation affect your credit score?

  Yes, debt mediation may cause your credit score to drop, as it indicates prior negligence to pay off one’s debt in its entirety. This suggests that the debtor has not fulfilled their financial obligations; in other words, they still owe money, which makes their credit score prone to drop some points.

• Is mediation binding?

  While the act of receiving professional debt mediation is not legally binding itself, the actual settlement to which both parties have agreed becomes binding once it is signed. This means it is enforceable by law, which makes debt mediation a risky, yet worthwhile process.

• Is it better to dispute or settle debt?

  It depends on the situation. It is important to first understand where the debt is coming from or why it is owed. Once this is determined, debtors can make their decision. For one, if a debtor is certain that they do not owe a specific amount of money, disputing it may be their best option. If they do owe the money, however, coming to a settlement may be their best option so as to avoid racking up an even larger number.

• What is the role of mediation in debt collection?

  Mediation plays a significant role in debt collection, as a mediator is legally obligated to act impartially when it comes to settling this debt between a debtor and a creditor. The creditor will typically assign or hire debt collection to recover the debt or make plans to strategically recover it. If debt collection does not work, debt mediation is the next step, giving debtors an opportunity to arrive at a settlement by working with a mediator to find debt solutions.

• Which methods of debt collection are effective?

  While there are many different methods that work in debt collection, several of them tend to work better than others. For one, giving debtors incentives, such as reduced payments or earlier deadlines, will persuade them to act more swiftly in paying the debt off. Additionally, pursuing legal action may lead to immediate regulatory compliance among debtors who fear an unfavorable court settlement. Lastly, ensuring unambiguous communication with debtors is crucial, with information that is clear and detailed, leaving zero room for misinterpreting deadlines or money amounts.

• What are the five steps of mediation?

  There are five steps of professional debt mediation, including:

  • introduction: assessing whether mediation is a good option or not by introducing both parties to each other and assessing whether the procedure is affordable and favorable to either. 
  • evaluation: assessing whether mediation is an affordable option based on the debtor’s general financial status.
  • strategy of negotiation: looking at the facts of the situation and figuring out what the real issue is and why the debt has not been paid. From here, mediators can go about planning a negotiation, especially as it benefits both parties. 
  • negotiation: the actual negotiation is then offered as a means of reaching a settlement between the parties. It is meant to influence each party towards reaching an agreement. 
  • settlement: reaching an agreement about the financial objective towards which both parties can actively work.

• Is debt mediation better than court?

  Generally, debt mediation is considered to be better than taking matters of debt to court. This is because it is quicker, simpler, more efficient, more flexible, less time-consuming, and less formal. There is far less pressure to pay off debt at such a large sum with so little time.

• How long does mediation take?

  Because mediation can only be executed in progressive steps and relies on multiple factors, it can take anywhere from six months to five years. This is based on how much money is still owed, how willing a creditor is to utilize the mediation process, and how quickly the debt can be paid.