What Happens in Arbitration? Debt Lawsuit Guide 2024

Winning your debt collection lawsuit often comes down to strategy. In some situations, filing a Motion to Compel Arbitration is your best move. You need to understand what happens in arbitration and when to use it.

What Is Arbitration?

Arbitration moves your case out of the courtroom into a private process. An arbitrator works with you and the debt collector to reach a resolution.

Don't Let Creditors Win by Default

You have limited time to respond to a debt lawsuit. Filing the right motion or Answer can save you thousands in judgments and fees.

Respond to Your Summons

Arbitration is usually legally binding, just like a lawsuit judgment. In some cases, the arbitrator only makes a recommendation.

When a creditor sues you, you can file a Motion to Compel Arbitration. Three possible outcomes exist:

The court grants the motion, moving your case to arbitration
The court denies the motion, and the lawsuit continues
The creditor dismisses the case to avoid arbitration costs

Filing this motion doesn’t eliminate your right to settle. You and the creditor can agree on a settlement anytime.

Who Pays for Arbitration?

Before filing anything, check who pays arbitration costs. Filing fees typically range from $1,000 to $2,000.

Arbitrators charge hourly fees between $150 and $500 per hour. Your credit agreement’s arbitration clause specifies who pays these costs.

When credit card companies sue you, they often cover arbitration costs. Sometimes you pay. Sometimes you split the cost.

Filing a Motion to Compel Arbitration only makes sense when the creditor pays. If the creditor covers all costs, your chances of dismissal increase significantly.

When Should You File a Motion to Compel Arbitration?

Filing makes strategic sense when your debt is $20,000 to $30,000 or less. The creditor must be responsible for arbitration costs per your agreement.

In these cases, creditors often drop the lawsuit or accept smaller settlements. For debts under $30,000, arbitration costs might exceed the debt amount itself.

Timing matters critically. File right after being sued for debt. Submit your Motion to Compel Arbitration instead of filing an Answer.

Our partner Solo helps you respond to debt lawsuits quickly and effectively.

Does the Court Always Grant the Motion?

Courts don’t automatically grant your motion. The lawsuit must involve an “arbitrable issue” outlined in your creditor contract.

If the issue qualifies for arbitration, the court must grant it. If not, the court denies the motion.

Example: Robert faces a $20,000 credit card lawsuit. His contract lists debt collection as arbitrable. The credit card company pays all arbitration costs. Robert files a Motion to Compel Arbitration. The court grants it because collection is an arbitrable issue.

What Happens During an Arbitration Hearing?

Arbitration works similarly to a lawsuit, but an arbitrator replaces the judge. Here’s what to expect:

You and the creditor both explain your perspectives
You present documents supporting your case
You can usually present witnesses
The arbitrator reviews evidence and makes a decision

Formality varies by arbitrator. Some prefer courtroom-style proceedings. Others take a relaxed approach.

What If You Lose in Arbitration?

Losing in arbitration mirrors losing a lawsuit. The arbitration decision becomes a binding judgment.

Creditors can garnish your wages or take money from your bank account. Some arbitration clauses require you to pay arbitration costs if you lose. Read your agreement carefully before filing.

Understanding the Arbitration Timeline

Arbitrators typically take 30 to 90 days to reach a decision. You’ll receive notice within this timeframe.

Appeals are only possible if both parties agreed beforehand. Most arbitration decisions are final and binding.

How to Prepare for Your Arbitration Hearing

Both parties and witnesses are sworn in at the start. Gather all relevant documents before your hearing date.

Organize your evidence clearly. Present witnesses who support your case. Be ready to explain your side concisely.

Arbitrators allow closing remarks at the end. Use this time to emphasize your strongest evidence and arguments.

A court reporter may attend to record the proceedings. Treat the hearing seriously, even if it feels informal.

Take Action on Your Debt Lawsuit

You don’t need expensive attorneys to fight back against creditors. Understanding arbitration gives you powerful leverage in debt collection cases.

Review your credit agreement immediately. Check the arbitration clause and who pays costs. Calculate whether filing a motion makes strategic sense for your situation.

Our partner Solo makes responding to debt lawsuits simple and affordable. You can defend yourself effectively.

Frequently Asked Questions

What is arbitration in a debt collection case?

Arbitration is a private dispute resolution process that moves your case out of court. An arbitrator reviews evidence from both sides and makes a legally binding decision, similar to a judge's ruling.

How do I know if I should file a Motion to Compel Arbitration?

File this motion if your debt is under $30,000 and your credit agreement states the creditor pays all arbitration costs. Check your contract's arbitration clause before filing to confirm who pays fees.

Can I appeal an arbitration decision if I lose?

You can only appeal if both parties agreed to allow appeals before the arbitration began. Most arbitration decisions are final and binding with no appeal options.

What happens during an arbitration hearing?

Both parties present their cases, submit evidence, and call witnesses. The arbitrator reviews everything and makes a decision within 30 to 90 days. The process is less formal than court but legally binding.

How much does arbitration cost for debt lawsuits?

Arbitration filing fees range from $1,000 to $2,000, plus arbitrator hourly fees of $150 to $500 per hour. Your credit agreement specifies whether you, the creditor, or both parties pay these costs.

What Happens in Arbitration? Your Complete Guide to the Process