There are many legitimate debt arbitration services that offer real debt help to consumers like you and I. However, there is also a shady "Debt Arbitration" scam that exists and that you should be aware of.
When good people find themselves in excessive debt, sometimes their sense of judgment is not at its best. And when they receive an offer from someone promising to completely eliminate their debts through "legal debt arbitration" the temptation is so great that they fall for this scam.
Sidebar: Just to be clear, debt arbitration (also called debt negotiation or debt settlement) is a real and legitimate way of reducing your debts and getting them paid off sooner. Debt arbitration that is "above board" involves negotiating a settlement with your creditors that allows you to pay off your debts for less than what your outstanding balance is. This type of debt settlement is completely legal, and in fact can be a great tool in helping you get out of debt.
The debt arbitration scam, on the other hand, does not resemble true
debt negotiation at all. Here is a quick summary of how this debt scam
Like most of the debt elimination scams that exist, the debt arbitration scam is based on the false "no money lent" premise which goes as follows. When you signed the credit application for your credit card, you signed a promissory note. The no money lent argument is that this note is used as the basis of the funding of your loan, and therefore has a cash value.
"Debt Arbitration Services" (which are really just scam operations) offer debtors (you) the opportunity to eliminate or "resolve" your debts through arbitration based on this no money lent argument. They do this by preparing a "notice of arbitration" for you to send to your creditors. The arbitration that the notice refers to is completely bogus. It usually states that an independent arbitration committee has ruled that because the promissory note you signed has a cash value, that this value offsets any debts that you owe.
If you are not following this argument that is a good thing, and a bad thing. It is good because the argument is completely flawed and you should avoid any company that tries to talk you into the legitimacy of any such argument. It's bad because these con artists make the argument so complicated and "legal" sounding that many innocent folks actually fall for it.
In the end, people who fall for this scam end up paying a fee to the scam artists in order to receive this favorable arbitration award that can be sent to the credit card company or the bank. But not only are the victims conned out of their money, they can also face criminal charges on a federal level.
Of course, the courts and creditors do not recognize the validity of these false debt arbitration services, but they are a nuisance none the less. And in the end, all the debtor has done is likely delayed the inevitable repayment of the debt and/or committed a federal crime.
Avoiding these type of scams is easy if you use your common sense. And you may be thinking to yourself "I would never fall for such a thing." But beware, the arguments these scam artists put forth are very convincing. So just remember, if someone tells you that you don't really owe that credit card debt because of some "wrinkle" in the law, run (don't walk) away as fast as you can.
Instead, consider using one of many real and legitimate debt arbitration services that operate legally and provide a legal and valuable service.