February 2, 2007, Newsletter Issue #49: Differences Between Debt Arbitration, Negotiation, and Bankruptcy

Tip of the Week

Most people do not understand the differences between debt arbitration, negotiation, and bankruptcy. There are many differences between all of them, but some are more important to the average person than others. Here are a few of the differences that will impact you if you are going through deciding how to resolve your credit or debt problems.

First, an arbitration or negotiation differs from a bankruptcy in that a bankruptcy is public record. This means that it will reflect on your credit report and on any application you fill out for the future. Almost every loan application asks the question, “Have you ever filed for a bankruptcy?” With debt arbitration or negotiation resulting in a settlement, you can safely answer “No” to that question and have a better shot at getting that loan.

Another important difference between debt arbitration and bankruptcy is the way that they are reflected on your credit. Debts that are paid normally are reported as “Paid as Agreed”. Debts that are settled as a result of arbitration hearings will be reflected as “Paid”.

Lastly, debts that go unresolved due to a bankruptcy are reflected as “Defaulted”. Of these three options, which would you prefer to see on your credit report? Definitely the first, and the second is much better than the third. For more details on the differences between debt arbitration and bankruptcy, consult with an attorney or credit counselor who can walk you through all of your options. Don't rush into a decision that could effect the rest of your life. Take the time to get a consultation and you will get a better resolution.

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