What is Debt Mediation? How Debt Mediation helps in resolving Debt disputes. The benefits of debt mediation
What is Debt Mediation? How Debt Mediation helps in resolving Debt disputes. The benefits of debt mediation

What is Debt Mediation? How Debt Mediation helps in resolving Debt disputes. The benefits of debt mediation

In debt recovery situations, debt mediation offers succor to consumers that are facing rising mountains of debt from the stresses that come with the more formal and sometimes harsh debt recovery solutions employed by creditors. 

The process provides an avenue for consumers and creditors to connect, and the connection provides clarity for all the parties concerned. In one sense, creditors are able to get the true picture of the indebted consumers’ situation and their actual capacities to pay off their debts.

With this clarity and willingness of the parties to resolve the situation they can come to a mutually beneficial agreement aimed at a final settlement of the debt. 

This mediated agreement, on the one hand, gives the already burdened consumers some breathing room and some level of control over their strained finance, and on the other hand, the creditors get to be paid without having to employ other debt recovery mechanisms.

What is debt mediation?

In simple terms, debt mediation is a process that allows indebted consumers to come to a new and mutually beneficial agreement with their creditors on how to pay off their debts in a manageable and timely manner.

The aim of the process is to bring consumers and creditors together, either directly or through a mediator, in order to arrive at a mutually beneficial agreement that discharges the consumers’ obligations to their creditors. 

The process is also variously referred to as debt negotiation, debt settlement, or debt arbitration and it can also serve as an alternative to bankruptcy and/or debt consolidation.

How Debt Mediation reduces stress

Being under a burden of debt is usually stressful enough as it is and the seeming lack of compassion sometimes exhibited by creditors only adds to the immense strain experienced by consumers with already overstretched finances. 

By facilitating a meaningful connection between the consumer and the creditor, debt mediation steps in to quickly alleviate the stresses. 

For instance, once the process begins, it should put a stop to any intimidating calls, letters of demand, and other forms of communication from apparently unsympathetic creditors or debt recovery agents.

Unmitigated stress resulting from being overburdened with debts has also been linked to anxieties that can negatively affect not only the emotional/mental health of indebted consumers but their physical well-being as well. 

Debt mediation, therefore, provides a welcome relief by affording consumers an ensuing period of relative calm as they make efforts towards the final liquidation of their debts. 

Hopefully, it will be a period in which they can experience some relative peace of mind without the immediate threats of other, more adversarial debt recovery processes being initiated.

How Debt Mediation helps in resolving Debt disputes.

Debt mediation can be a one-on-one exercise between the consumer and the creditor however, having a mediator as a go-between who is facilitating the discussions takes out a lot of the tensions that can plague the process otherwise.

Once the help of a mediator is enlisted as a go-between the indebted consumer and the creditor the process of mediation between the parties has begun. It will be the mediator’s job to assess the financial situation of the indebted consumer to determine whether he/she qualifies for debt mediation.

This evaluation will involve determining a consumer’s total existing debt and other financial budgetary requirements as against the consumer’s actual income. The mediator will, of course, be at liberty to suggest other processes if he/she is of the opinion that debt mediation is not appropriate.

After the evaluation is completed the mediator will then outline a plan on how best the debt can best be settled in a manner the consumer can bear and to the satisfaction of the creditor. 

It will be the mediator’s duty to facilitate communication between the parties and to work with creditors to arrive at a suitable agreement on how the debt will be paid off.

The final mediated settlement will include any concessions on interest payment and any reductions on the principal sum will eventually be reduced to writing by the mediator to be signed by the parties.

Why parties in dispute choose debt mediation over litigation.

The initiation of the debt mediation option sends a clear signal to the creditor that the consumer is willing to pay the debt. With the presentation of this option, the creditor is therefore presented with an option that avoids all the associated extra costs of litigation and/or judgement execution. 

Such a creditor is naturally, more open to such an option.

For the consumer, having bonafide, professional debt mediators acting as the “middlemen” can facilitate favorable agreements that allow not only make lower interest payments but also a reduced principal sum under a manageable plan without the immediate threat of legal action and the associated costs.

The benefits of debt mediation

The usual benefits associated with mediation as a conflict resolution mechanism generally also apply when the process is applied in debt recovery situations

Some of those benefits include, it is cost-effective, it saves time, the parties are in control of the outcome, and it is, of course, voluntary.

More specifically, however, the use of mediation in debt recovery situations also has the following benefits:

1.  The process leads to an agreed, reduced, and manageable debt repayment schedule for the consumer that enables him/her to settle without the hassles involved in, for example, litigation.

2. Debt mediation at the very al least gives the parties a clearer picture of the issues involved. Thus, one-way debt mediation helps is by enabling the creditor to have a better understanding of the debtor’s situation.

3. Aside from bringing clarity to the consumer-creditor relationship, debt mediation also takes the volatility out of it by facilitating a period of relative peace.

4. Debt mediation also staves off the threats of assets seizure or repossession

There is a lot to be said for debt mediation as a debt recovery solution. The several benefits it provides make it very attractive to consumers and creditors alike. 

It can be argued that any process that facilitates a creditor to get settled satisfactorily and a consumer to make good on their debts in a manner that is manageable is by far more desirable than any other rigorous, time-consuming, debt recovery method with their attendant extra costs.