Debts & Debt Collection

Debt and debt collection laws cover: the creation of debts; disputes regarding payment of debts;
reporting of debt on credit reports; and the methods of collecting on unpaid debts. If you use credit
cards, owe money on a personal loan, or are paying a home mortgage, you are considered a “debtor.”
The most common types of debt are: credit card debt, car loans, student loans, and home loans.

There are laws that protect you as a debtor during the various steps of the process. For instance, the
“Truth in Lending Act” protects you when you are entering into a credit agreement by making sure the
lender fully discloses all the details of the transaction. There are laws, like the Fair Credit Billing Act, that
protect you when you have a dispute with a creditor regarding billing on your account.

If you cannot pay your debts, creditors and debt collectors have a number of ways to try to collect on
debts you may owe them. They may be able to: record a lien against your property; levy upon your bank
account; garnish your wages; or repossess your car or other personal property.

The Fair Debt Collection Practices Act (FDCPA) controls what a debt collector can and cannot do when
trying to collect the debt. The Fair Debt Collection Practices Act is a federal law enacted to control the
debt collection process and protect debtors from abusive conduct by debt collectors. The FDCPA does
this by imposing harsh financial penalties on debt collectors that violate the Act. Aside from the FDCPA,
there are other federal and state laws that prevent a creditor or debt collector from abusing the debt
collection process or intimidating or harassing debtors into paying a debt.

In March 2015, the New York Department of Financial Services enacted new regulations that offer some
of the strongest protections in the country against debt collection abuses and unfair practices.

Sometimes, a creditor may think a debt belongs to you, but it actually belongs to someone else. This
often happens in situations involving identity theft. Identity theft is a crime in which another person
steals your name, social security number, or other personal identification information and then opens
credit accounts, uses your existing credit accounts, or uses your identity to obtain other benefits. Steps
must then be taken to clear your good name and restore your credit history as a result.
Billing Error Disputes
There are laws that protect you (the “consumer”) with regard to billing on your credit accounts. The Fair
Credit Billing Act (FCBA) is a federal law that covers credit billing disputes between you and
your creditors, giving a step-by-step procedure to resolve disputes. The general procedure is as follows:

 If you believe there has been a billing error, you must give written notice to the creditor of the
error within 60 days of receiving the bill with the error.

 The creditor must respond to you within 30 days. The creditor then has two billing cycles, but
not longer than 90 days, to resolve the dispute. At the end of that time, the creditor must either
explain to you why the bill is correct or it must correct the error.
 During that 90 day period, the creditor cannot try to collect on the amount in dispute and no
finance charges may be imposed on that disputed amount. The account may not be reported as
delinquent, nor can it be closed or restricted because of your failure to pay the disputed amount
and/or related charges.

 If you still believe the billing to be in dispute after the resolution period, you must again
notify the creditor in writing. During this period, the creditor may not report the account
delinquent without also reporting that the amount is in dispute. The creditor must also report to
you the name and address of each person to whom the creditor is reporting information about
the delinquency (for instance, a credit reporting agency such as Experian, Equifax
or TransUnion).

 The creditor must also report the matter’s resolution to anyone who received a report on the
delinquency.

 Creditors must include an address on your statements that tells you where to address your
billing questions.
Court Actions to Collect Debts
Your creditor or a debt collector (if your creditor has hired one) may file a lawsuit against you.
Whichever one files the suit must be the one to serve you with a summons. The summons may say on
the top that it is a “consumer credit transaction.” The creditor or debt collector will be called the
“plaintiff” and you will be the “defendant” or the “debtor.”

If a creditor or debt collector sues you in court, do not ignore the court summons. Consult an attorney
or seek out free legal resources. If you ignore the summons, the creditor can obtain a court decision,
known as a default judgment, ordering you to pay the money owed. The creditor, or the debt collector,
if there is one, may also be able to get an award of fees and interest charges in addition to the debt
itself.

It is important to answer the complaint within the required time frame. If the summons was personally
handed to you, you must respond within 20 days if the summons was served upon you in the State of
New York. If the summons was not personally handed to you, you have 30 days to respond. The way you
respond to the summons is by submitting an “answer” to the court. The answer is where you explain to
the court whether you agree or disagree with the plaintiff’s claims, and where you state any defenses to
those claims. You may also file a counterclaim for any claim you believe you have against the person
suing you (even if it’s not related to the claim filed against you). This is called a “counterclaim,” and it
can be included in your answer.

Answering the Summons &

Complaint
You can either answer the summons in writing or in person. If you answer in person, you must go to the
courthouse clerk’s office and tell the clerk about your defenses to the plaintiff’s claims. The clerk will
check off the boxes in a Consumer Credit Transaction Answer In Person form. You will get a copy of this
form when the clerk is done, and you should double-check the information the clerk wrote down. If
everything is correct, the clerk will then send a copy of your answer to the plaintiff.

If you choose to answer the summons in writing, you can either use the free form offered by the court,
or you can create your own form. If you create your own form for the answer, it must be either typed or
neatly handwritten. Also, your written answer must be “verified,” which means you are saying
everything in the answer is true. In order to verify the answer, you must sign it in front of a notary public
or the court clerk. You can also assert a counterclaim against the plaintiff if you think the creditor owes
you money.
Before you take your written answer to the clerk for filing, you should make a copy of it. Give the answer
and one copy of the answer to the court clerk. The clerk will give one copy to the plaintiff and return one
copy to you. When you go to court to see the judge, you should bring your copy with you.

There are several different defenses you can assert in your answer, depending on the facts of your
situation, including:

 You do not owe the money;

 You are the victim of identity theft;

 You already paid the debt;

 The amount of the debt is incorrect;

 The plaintiff does not own the debt;

 The plaintiff has no license to collect the debt;

 The complaint does not show the debt collection license number;

 The statute of limitations has passed and the debt is too old to collect;

 The debt was discharged in bankruptcy;

 The agreement related to the debt is unconscionable, or shockingly unfair;

 You are in the military;

 Your debt arose out of work done by a home improvement contractor who was not licensed
and/or had you sign a defective contract according to the home improvement statutes.

Court Appearances
After you answer the summons, you will get a date to come back to court. The court date will be at least
five days after the day you file the answer. If you miss your court date, there could be serious
consequences. The court could enter a judgment against you. If you have a legitimate reason why you
cannot make it to your court date, you must contact the court in advance and request an adjournment,
which allows you to postpone or reschedule your court date. This “postponement” is referred to as “an
adjournment” by the court personnel and lawyers.

When you arrive on your court date, there usually will be a calendar posted outside the courtroom. Look
for your name and write down your calendar number. Then tell the clerk in the courtroom that you are
there. This is called “signing in.” Let the clerk know if you need an interpreter. After that, you will sit
down and wait for your case to be called.
When your case is called, make sure you understand what is going on and what is expected of you. If
you do not understand something, ask the clerk or the judge. If you are given another day to come back
to court, make sure you know the date and time, and that you write it down.
Money Judgments & Default Judgments
If the creditor or debt collector gets a money judgment against you, they may be able to have the
marshal take money from your wages or from your bank account to pay the judgment. However, there
are certain types of income that cannot be used to satisfy a money judgment in a collection action. The
following funds are exempt from being used to satisfy a money judgment in a collection action:

 Social Security Disability (SSD);

 Supplemental Security Income (SSI);

 Social Security retirement benefits;

 Disability benefits;

 Workers’ compensation benefits;

 Public assistance (Temporary Assistance for Needy Families (TANF));

 Any income you earn while receiving SSI or public assistance.

If you do not answer the summons and the creditor obtains a default judgment against you, there is a
way to undo or vacate the default judgment. You should go to court and file an Order to Show Cause.
This is a legal paper that the court will sign, ordering the plaintiff to appear in court and give a good
reason why the judgment should not be vacated, or un-done. In the Order to Show Cause, you will have
to explain to the court why you did not appear in court or file an answer, such as you did not receive the
summons, or you were sick, or out of the country. You will also have to explain whether you have any
defenses to the action, such as you do not owe the money, or you already paid the money.

Debt Collection
If you suffer a financial setback like the loss of a job or unexpected medical expenses, you may not be
able to make your payments on time. If this happens to you, act quickly by contacting the creditor,
explaining the circumstances, and offering to work out a payment plan. Sometimes a creditor will agree
to refinance the loan or otherwise modify your agreement to allow you to catch up on your payments.

If you still cannot pay your debts, there are laws that offer some protection. For instance, the Fair Debt
Collection Practices Act (FDCPA) is a federal law enforced by the Federal Trade Commission that protects
the rights of consumers by prohibiting certain methods of debt collection.

The FDCPA applies to the practices of debt collectors and attorneys. It does not apply to creditors who
are trying to recover their own debts. A debt collector is defined as any person who regularly collects or
attempts to collect, consumer debts for another person or institution, or uses some name other than
the debt collector’s own name when collecting its own consumer debts.
The FDCPA does not apply to all debts. For instance, it does not apply to the collection of business or
corporate debts. It only applies to the collection of debts an individual consumer incurred primarily for
personal, family, or household purposes.

Under the FDCPA, a debt collector must follow certain procedures when contacting a consumer. Debt
collectors must identify themselves, state their purpose for contacting the consumer, provide the name
and address of the original creditor, the amount due, and notify the consumer of the right to dispute the
debt.

The FDCPA requires a debt collector to respect your right to privacy and your right to be free from
harassment and abuse. They must also provide you with honest and accurate information.

Harassing & Abusive Practices

Debt collectors cannot use harassing, abusive, misleading, false, or unfair methods to collect debts.
Harassing and abusive practices include:
 Using or threatening to use violence or other criminal means to harm your physical person,
reputation, or property;

 Using obscene, profane, or other language that abuses you;

 Advertising a debt for sale to coerce payment;

 Annoying, abusing, or harassing you by repeatedly calling your telephone number or allowing
your telephone to ring continually;

 Making telephone calls without properly identifying who is calling, except as allowed to obtain
location information;

 Calling you early in the morning or late at night;

 Contacting you after receiving written notice that you do not want further contact;

 Publishing your name on a “bad debt” list (however, this does not prohibit the debt collector
from reporting your debt to a credit reporting agency).

Deceptive or Misleading Practices

Deceptive or misleading practices include:

 Lying about the identity of who is calling in order to get you on the phone;

 Threatening you with arrest or legal action that is not legal or intended;

 Revealing your debts to third parties;

 Falsely representing or implying an affiliation with the United States or any state, including the
use of any badge, uniform, or similar identification;
  Falsely representing or implying that the person calling is an attorney or that communications
are from an attorney;

 Falsely representing or implying that nonpayment of any debt will result in arrest,
imprisonment, or the seizure, garnishment, attachment, or sale of your property or wages,
unless such action is lawful and intended by the debt collector or creditor;

 Falsely representing or implying that you committed a crime or other conduct to disgrace you;

 Using any false representation or deceptive means to collect or attempt to collect a debt, or to
obtain information about you;

 Falsely representing or implying that documents are legal process;

 Falsely representing or implying that documents are not legal-process forms or do not require
action by you;

 Falsely representing or implying that the debt collector operates or is employed by a consumer
reporting agency.

Unfair Practices

Unfair practices include:

 Collecting any interest, fee, charge, or expense incidental to the principal obligation, unless it
was authorized by the original debt agreement or is otherwise permitted by law;

 Accepting a check that is postdated by more than five days, unless the debt collector notifies
you, in writing, of any intention to deposit the check or instrument;

 Getting you to provide a postdated check to use as a threat or to institute criminal prosecution;

 Depositing or threatening to deposit a postdated check before the date on the check;

 Causing communication charges, such as charges for collect telephone calls, to be made by
concealing the true purpose of the communication;
 Taking or threatening to repossess or disable property when the creditor has no enforceable
right to the property or does not intend to do so, or if, under law, the property may not be
taken, repossessed, or disabled;

 Using a postcard to contact you about a debt.

If a debt collector is engaging in any of the above abusive or deceptive practices, you should report the
unlawful behavior immediately to the state Attorney General’s office and the Federal Trade
Commission. If a debt collector violates the FDCPA or a state debt collection statute, you may also sue
the debt collector and recover damages and penalties. A debt collector who fails to comply with any
provision of the FDCPA is liable for any actual damages caused by the violation and punitive damages of
up to $1,000, plus attorney fees.

If you do decide to sue the debt collector, you must do so within one year from the date the statute was
violated. The debt collector will not be liable for a violation if it can show that the violation was not
intentional and was the result of a legitimate error that arose despite procedures reasonably designed
to avoid any such error.

Getting Into Debt – Consumer Credit

Transactions
If you obtain credit from a creditor, certain laws protect your rights regarding the credit transaction,
including: billing you for payments, fees and finance charges, reporting transactions to credit reporting
agencies, and collecting on debt if you fail to make your payments. The Truth in Lending Act (TILA)
covers your consumer credit transaction when: (1) you are an individual person and the credit is being
used primarily for personal, family or household purposes; (2) the transaction involves repayment in
more than four installments; and (3) you will incur finance charges.

Under the TILA, you must receive full disclosure of all the terms of any credit offer, such as payment
dates, annual interest rates, overdue payment charges, and finance charges. These disclosures must
occur before the loan is processed or credit is extended. The TILA also prohibits the issuing of a credit
card unless it is in response to an oral or written application, or as a card renewal. However, creditors
can send out applications for credit that you have not requested and can also renew your credit card.

The TILA applies to most types of credit, but the disclosures are different depending on whether it is a
closed-end credit or an open-ended credit. Closed-end credit is where you borrow a fixed amount of
money to purchase a specific item, like a car or a house. Open-ended credit is where you have a certain
amount of money that you can borrow against to purchase whatever items you want, like a credit card
or a line of credit. All disclosures must be made clearly, conspicuously and in writing. Keep in mind that
some transactions are not covered by TILA, such as credit transactions of over $25,000 that do not
involve a security interest.

Lien, Garnishment & Levy

After a creditor, or its debt collector, gets a judgment against you for unpaid debts, they are then
referred to as the “judgment creditors.” There are several ways the judgment creditor can try to collect
on that debt. Two common ways are by filing on the land records, a written document called a lien or
by attaching your wages with a “garnishment.” A lien is a security interest given to the judgment
creditor over your property, such as a house or a car. A garnishment allows the creditor to collect on the
judgment debt directly from your wages or other compensation. There is a third way the judgment
creditor can come after you to try and collect your alleged debt. A levy is a taking of money by legal
process through seizure and sale of property.

Lien

Your creditor, or its debt collector, can place a lien on your property as soon as it becomes the judgment
creditor (as explained above) in order to secure repayment of a debt. The lien is generally recorded by
the judgment creditors’ on the land records at the local county office. Liens can be imposed in several
situations (or the Department of State in certain instances, for example, in the case of a cooperative
apartment debt). Liens can be used to obtain payment on a money judgment for back taxes or for
attorney’s fees.

When a lien is put on your property, it does not mean that the creditor will get paid right away or will
get paid in full, or even at all. Instead, the lien gives the creditor the right to receive a portion of any
money you would receive if the property is sold or refinanced. If you do not ever sell the property, the
lien may not result in a payment of any money to the creditor.

Also, even if property is sold or refinanced, your creditor may not get paid in full, or at all, depending on
what other liens are already on the property, if, for example, it was recorded before that creditor filed
its lien on the land records. Some creditors get priority over other creditors and must be paid first.
Sometimes, this leaves little or no money to pay the other lien-holders, and they will have to find some
other way of collecting on the debt.

Garnishment

If you are employed and are unable to pay a debt or a money judgment, the court can order that your
wages be “garnished.” This means the money to pay the debt will be taken from your paycheck and
paid directly to the creditor. A garnishment is a common way to get you to pay overdue court fines or
judgments, child support or for back taxes.

There are laws that protect you if your wages are garnished. For instance, the Consumer Credit
Protection Act (CCPA) prohibits your employer from firing you due to the wage garnishment, unless you
have been garnished for more than one debt. It also limits the total amount of your earnings that can
be garnished in one week. In general, garnishment is limited to 10% of your gross income. However, if
the garnishment is to pay delinquent child support, 60% of your income may be garnished.

If you need your whole paycheck to pay for the basic support of yourself and your family, you can file a
form with the court to try to stop the garnishment. Also, filing bankruptcy can usually stop garnishments
for most debts.

Levy

A levy is a legal order requiring a third party, usually your bank, to remove money from your account
and turn it over to the judgment creditor or collection agency that has the judgment against you. To
remove the levy, you must either pay the bill in full or show that the funds in the account are exempt.

New York is one of the few states that protects your bank account by requiring the judgment creditor
and the bank to take certain steps before your bank account can be levied or restrained. The New
York’s Exempt Income Protection Act (EIPA) sets a minimum baseline balance that is not subject to a
freeze or levy by the judgment creditor. This baseline amount is currently set at $1,920 per banking
institution. The protected amount goes up to $2,625 if the account includes directly deposited
government benefits and other types of income that are exempt from creditors such as Social Security,
unemployment insurance, child support payment and alimony.
The EIPA also requires the bank to analyze the funds in your account to make sure it does not contain
exempt funds. It also requires the judgment creditor to issue exemption forms to the bank to give to
you, and to appropriately address any claimed exemptions.

Certain types of funds are exempt from restraint or levy. These funds include:

 Supplemental security income (SSI)

 Social security

 Public assistance (welfare)

 Spousal support, maintenance (alimony) or child support

 Unemployment benefits

 Disability benefits

 Worker’s compensation benefits

 Public or private pensions

 Veteran’s benefits

 90% of your wages or salary earned in the last 60 days

 Railroad benefits

 Black lung benefits

If a judgment creditor levies a bank account containing exempt funds, you may be able to get the money
back. The court has a free form that can be used for this purpose called an Exemption Claim Form.

Repossession
When you finance or lease a car, the lender or leaseholder holds the title to the vehicle until the loan is
paid off. The car is the collateral for the loan, and you give the lender a security interest in the vehicle.
Then, if you default on your payments, the lender has a legal right to take back the car, which is called
repossession.

The lender or leaseholder can repossess the car even if you are only a few weeks behind in your
payments and even without any notice to you. The reason for this is that you could try to hide the car or
damage it if you knew the lender was coming to repossess it. The creditor also does not need a court
order to take the car back, so you have no opportunity to explain your reasons for missing payments to
a judge.

The best thing to do if you are having trouble making your car payments is to contact the lender or
leaseholder to let them know what is happening. The lender or leaseholder may be willing to negotiate
with you by either temporarily lowering your payments or adding the missed payments to the end of the
term so they are no longer considered past due.
If your car gets repossessed, you have certain legal rights, and the law can protect you from wrongful
repossession of your car. For instance, if your car is repossessed, you have the following rights:

 The right to receive a notice immediately after the repossession;

 The right to receive a notice before your vehicle is sold or auctioned;

 The right to be provided with a statement regarding the sale after your car is sold or auctioned.

After the repossession, your lender or leaseholder may allow you to reinstate your contract if you pay
the past due amounts. If the lender or leaseholder does not agree to reinstate your contract, it may try
to sell your car at an auction. You will have a right to know when and where the sale will take place, as
well as the right to bid on the car and try to buy it back. If you have paid more than 60% of the loan
when your car is repossessed, then your lender must auction the car within 90 days.
When your car is sold at the auction, the lender will take the money from the sale and first pay the fees
and expenses for repossessing and storing the car, and then pay the rest toward the balance you owe on
the loan. If there is not enough money from the sale to pay the loan off after paying the fees and
expenses, the lender or leaseholder has the right to sue you in court for the remaining balance on the
loan, which is called a deficiency balance. However, the car must be sold in a commercially reasonable
manner, which means the lender or leaseholder cannot sell the car for an amount that is far below
market value and then try to collect the deficiency balance from you.

If your car is repossessed, you have several options of trying to get the car back, including (and there
may be others that an attorney might know of or be able to tell you about):

 Redeeming your car from the lender by paying the entire loan balance, including all arrears and
repossession costs;

 Buying your car back by bidding on the car at the auction – but, if you buy back the car at the
auction and it is not enough to cover the loan balance and any fees, you will be responsible for
the balance;

 Reinstating your loan by clearing up all the past due payments and paying all repossession costs,
and then continuing to make regular payments on the loan;

 Filing for bankruptcy – the automatic stay will stop the lender from selling your car without
getting permission from the court first. This may give you enough time to gather the money you
will need to buy the car back.

There are also some legal defenses that may be available to you. If the car is not sold yet, you may be
able to get it back by arguing that:

 Your lender breached the peace when repossessing the car;

 Your lender did not sell the car in a commercially reasonable manner;

 Your lender waited too long to sue and the statute of limitations ran out.