Life After Mediation Settlement: What You Need To Know
7 MIN READ
Published January 24, 2024 | Updated January 30, 2024
If you’re unable to repay debts, debt mediation is a good way to successfully resolve the situation with your lenders. A debt mediator will help you settle your debts for less than you owe so you can regain control of your finances.
Before hiring a debt mediator, it’s best to learn more about how the process works and what happens after mediation settlement to be better prepared.
What Is a Mediation Settlement?
A mediation settlement is an agreement with your lenders to settle your account for less than you owe. You’ll reach this agreement with the help of a professional mediator who facilitates the negotiations to reach a mutually agreeable resolution.
The purpose of debt mediation is to find a solution that alleviates your financial stress, allows you to repay your debts, and avoids bankruptcy. Debt mediators can negotiate with your lenders to set up an affordable payment plan, reduce your interest rate, or settle your account for less than you owe. You’ll be able to repay your debts faster through any of these solutions.
Possible Mediation Settlement Outcomes
There are three possible outcomes when working with a mediator for a debt settlement. It’s important to remember that it may take some time and several sessions to reach a mutually agreement mediation settlement.
The most beneficial outcome for all parties involved is an agreement. During the mediation settlement session, the borrower and lender may reach an agreement regarding the settlement amount and terms of the settlement.
No Agreement (But Negotiations Continue)
If you do not reach a settlement on the first try, don’t view it as a failure. It may sometimes take two or three sessions to resolve a complex case. During a session, the creditor may not agree to your settlement offer, but they may present a counteroffer and agree to continue negotiations.
No agreement (And Negotiations Stop)
In some cases, a party may have second thoughts after a mediation session. They may decide to stop negotiations. If a lender or debt collector decides to stop negotiations after a mediation session, you’ll have to work to find an alternative solution.
Your mediator may be able to suggest the next steps or prepare a better settlement offer to present to the creditor. If not, you may have to consider other debt-relief options to resolve your debts.
What Happens After a Mediation Settlement?
Understanding what happens after mediation settlement will allow you to be better equipped to manage the situation. Once you reach an agreement with a creditor or debt collection agency, the next step is to finalize the terms of the agreement and get it in writing.
Implementation of the Settlement Agreement
A debt mediator acts as an intermediary between you and your creditors. After the mediation settlement, they’ll work to iron out the details of the settlement. They’ll finalize the details of how the settlement agreement will be implemented.
For example, if you’ve decided on a lump sum payment to settle the account, they’ll finalize the date of the payment and how it will be reported to the credit bureaus. If you’ve agreed to a restructured payment plan, they’ll work to finalize the terms of the plan.
Your debt mediator may also recommend consulting a tax professional since debt forgiveness is considered taxable income, and you may owe taxes to the IRS.
Finalizing the Settlement
The final step of the mediation settlement process is the settlement agreement. Your mediator will get the settlement agreement in writing and file the necessary paperwork with the court if needed after the mediation settlement.
This is an important part of the process, especially if the debt collector has sued you for non-payment in court. If you negotiate a mediation settlement with a debt collector before you go to trial, they have to agree to dismiss the lawsuit with prejudice. This means that the Plaintiff can’t sue you again for the same debt.
“Always get your agreed-upon settlement in writing,” says Teresa Dodson, a financial expert and the founder of Greenbacks Consulting. “Once you're done making the last payment on the settlement, you also need to make sure everything is updated with the three credit-reporting bureaus after about 45 days. I recommend a credit monitoring program to help manage this,” explains Dodson.
What Happens if You Fail to Comply With the Settlement Agreement?
Once the debt settlement agreement is finalized and you sign it, it is a legally binding contract. Knowing what happens after mediation settlement and the consequences of not complying with it is crucial. If your financial circumstances have changed and you fail to comply with the terms of the agreement, you may have to pay penalties as specified in the contract.
Not keeping your end of the bargain means you’re breaking the mediation settlement agreement, so there will be certain costs. The lender may decide to sue you. If you receive a summons notifying you of the lawsuit, file an answer as soon as possible to prevent a default judgment.
Another thing to keep in mind is that when you don’t comply with the settlement agreement, you’ll have to find an alternate way to deal with your debts. Stopping payments towards a settlement can result in more damage to your credit score.
Why Choose a Mediation Settlement
While you can negotiate debt settlement on your own, there are a number of advantages of professional debt mediation settlement. Mediators are experts in conflict resolution and negotiations. They can improve your chances of resolving your debts cost-effectively.
Mediators also have in-depth knowledge of the debt collection process, which is important when it comes to achieving the best results. A mediator can reduce stress, protect your interest, provide you guidance and education, and communicate with your lenders on your behalf.
Talk to a Debt Mediator
Whether you’re dealing with mounting credit card debt or finding it difficult to repay your debts due to a job loss, a debt mediator can help you find a way to resolve your debts. However, it’s important to hire a mediator who has a lot of experience dealing with debt collectors and lenders.
Take your time to check their reputation, customer reviews, and what their service includes. Learn more about their fees, and don’t hesitate to ask questions during the free consultation before you hire them. It’s also important to hire a debt mediator you feel comfortable working with.