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Understanding Debt Collection Arbitration

Debt collection arbitration can be initiated by creditors and debtors if the contract requires that disputes should go through arbitration. In arbitration, the parties submit their dispute to an arbitrator for settlement of debt claims against either party.

The arbitration decision is binding on both the parties, so it’s important to understand how debt collection arbitration works for both debtors and creditors and what are the outcomes for either party. With this knowledge, you can make an informed decision about whether you want to enter into a contract that requires an arbitration to settle disputes.

Arbitration Clause

Contracts for some goods or services require the parties to settle the dispute through arbitration.

If the parties to the dispute want to keep their options open, then enter into a contract that does not require arbitration or any provision that allows you to decide the dispute in an informal way.

Initiating Arbitration

The arbitration process can be initiated by creditors or by the debtor.

Creditors initiated

The creditor may initiate an arbitral process if after several notices the attempt to collect the debt is unsuccessful. The creditor can file for arbitration, to begin with, settlement process against the debtor.

Debtor initiated:

Debtor initiated arbitration also known as debt settlement or debt negotiation. It is an attempt to claim reliefs for the outstanding amount made to the creditor

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The Arbitration Processes

Recovery of an outstanding amount from debtor may amount to arbitration proceeding if it is mentioned in a contract. Arbitral proceeding works in the following way:

  • Sending an arbitral notice to debtor mentioning the outstanding amount and an invitation to settle the dispute through arbitration
  • The parties or the legal representatives then prepare for presentations and exchange information with arbitrators.
  • Both parties may present their side of issues concerning debt collection and evidence to the arbitrator.
  • The arbitrator on the basis of facts and evidence records the decision which is binding on both parties.

A Consequence of Arbitration

The arbitrator after hearing both the parties may issue a decision of payment of outstanding money to the creditor. The debtor is liable to make the payment as stated in the settlement agreement. Common methods for payment are:

  • Payment in installments
  • In future date as agreed between the parties

Outcomes of Arbitration

Based on the arguments of both parties, the arbitrator will come to a verdict and decide on a solution that follows the legal standard. The settlement may provide few reliefs provided to both parties:

Reliefs provided for debtor

  • Providing extended payment terms
  • Offering discount
  • Reducing the debt amount

Reliefs for creditor

  • Late payment fee
  • Attachment of debtor’s movable property
  • Attachment of stocks and bonds
  • Sale of real estate property

Challenging Arbitral Award

If the debtor or creditor does not agree with the decision of arbitrator you can refer it in the competent court.

Few Reasons for challenging arbitral award include:

  • Misconduct on behalf of arbitrator
  • Arbitrator acted partially

Arbitration Must be Fair

Certain laws attempt to ensure the complete fairness of arbitration processes.

  • The debtor should be notified about the arbitration process before it occurs.
  • The improper notification could lead an arbitrator to rule in creditors’ favor, while timely notification gives you an opportunity to prepare.
  • An arbitrator should be impartial and has no links to the creditor. This means there can be no conflicts of interest and the arbitrators cannot show any bias.

HHS lawyers and legal consultants have an expert team handling Arbitration. We can guide you through complexities in debt collection through arbitration. We work with an aim to deliver result-oriented services for debt collection. If you are looking for advice on debt recovery services contact us for further consultation.

Hazim Darwish

Hazim Darwish, is a Senior Partner of HHS Lawyers in UAE. Practicing law for almost a decade, he has in-depth knowledge on UAE legislation with particular expertise on legal drafting, contract drafting, labor disputes, family law, and regulatory compliance for business organizations. Hazim Darwish also provides counsel on legal rights and obligations in the UAE to clients, including individuals and businesses subject to investigation or prosecution under Criminal Law by major regulators.