Dealing With Debt

Owing money can be stressful. Knowing about your options, and knowing what creditors can do when you owe money, may make debt easier to deal with. This Legal Lifeline covers many issues with debt, so feel free to go to the section that would help you most. When this Legal Lifeline talks about debt, we’re talking about debts owed between private people and businesses. If the debt is owed to the government, the information covered here would not usually apply.


What can Creditors do when you owe money?

A creditor is somebody you owe money to, and creditors have different options depending on what the debt is for, and if the debt is secured or unsecured. Sometimes when you borrow money, you promise that if you do not repay the money when you were supposed to, the creditor may sell an item or property. This is called secured debt, and the item or property the creditor can sell is called collateral. Common kinds of collateral are houses with a mortgage, a car when you take out a loan to buy it, or sometimes household appliances if you buy them on a payment plan. Even some credit card contracts put up your car as collateral if you do not make payments. If you borrow or owe money and you have not put up collateral, then it is an unsecured debt.

Below are short outlines of common kinds of debts, and what may happen if you fall behind on payments.


Personal loans, medical debts, (most) credit cards

The creditor may send you letters demanding that you pay. If you do not, they may sue you to get a money judgment. We’ll explain money judgments more in a later section.


Car loan

The creditor may repossess, or repo, your car. If they try to repossess your car, they should not breach the peace while they do it. That means they should not cause a fight or break into a garage. If you catch them trying to repossess your car and tell them to stop, they should. If they do repossess the car, they should send you a letter in 72 hours. The letter should tell you what they repossessed, explain your right to redeem, or get the car back, and how much you have to pay to redeem the car. The amount to redeem can include their costs in repossessing the car. Also, the letter should say how they expect to sell the car and when, and give you contact information for how to get more information. They should give you notice at least ten days before selling the car. If you do not redeem the car, and they sell the car, they should take the money from the sale and apply to your debt. If you still owe them money after they sell the car, they can sue you for a deficiency money judgment.



If you own a home and do not pay the mortgage, the creditor can foreclose on the home. This means that the bank can sue you in a foreclosure lawsuit to sell the home and make you move out. There is a mandatory court conference to try to settle the case, in addition to court proceedings, and the whole process takes a year or more in New York State. Lenders will sometimes negotiate repayment plans, even after a foreclosure has started, so talk with your lender. Alternatively, a Chapter 13 bankruptcy (see below) may help a homeowner who owes on the mortgage if the homeowner now has enough income to make regular monthly payments on the mortgage as well as payments on the past amount due.



Landlords can sue you in an eviction case and ask the judge for a warrant of eviction and money judgment for the unpaid rent. If the landlord wins and gets a warrant of eviction, the sheriff must serve you with a seventy two hour notice of the warrant before removing you from the apartment. The seventy-two hour notice period does not include weekends or holidays. The Department of Social Services may be able to help you with back rent you owe.



The utility company should give you a notice that they are disconnecting your power at least fifteen days before they do it. The utility should try to contact you to work out a deferred payment agreement (DPA) before shutting off the power. Usually the DPA can require a down payment, and to pay your monthly bill plus some money towards the back bills in exchange for the utility agreeing not to shut off the power. The lowest DPA is your monthly bill plus ten dollars per month, with no down payment. If you agree to a DPA and fall behind again, the utility usually does not have to offer you a new DPA. The Department of Social Services may be able to help you with bills you owe to the utility company.


What happens if I am sued by a creditor?

No matter what kind of debt you owe, a creditor can sue you for the money you owe. The creditor should have you served with court papers, called a summons and complaint, which will tell you how long you have the answer the lawsuit, and will tell you why they are suing you. An answer is your paperwork that explains whether you agree or disagree with their lawsuit, and explains any defenses you may have to their case. You have to file your answer with the court and serve it on the creditor and their lawyer. You should contact a lawyer about defending you as soon as you receive a summons and complaint. If you cannot get a lawyer to represent you, the court clerk may have blank answer forms for you to use, or has programs that can help you complete an answer. If you do not complete an answer to the lawsuit, you will default, meaning the creditor will automatically win.

If you do not answer the lawsuit, or if you do answer but the creditor wins the case, the court will give the creditor a judgment. A judgment is a legal paper that says a person owes money to another person or business. Judgments have a nine percent annual interest rate. The creditor has twenty years to enforce the judgment. Payments made on a judgment reset the twenty year life of a judgment.


How can a creditor enforce a judgment against me?

Someone who wins a judgment is called a judgment creditor. The law gives a judgment creditor many tools to enforce, or collect, on a judgment. The most common are wage garnishments, freezing bank accounts, and placing liens on real property. Even though judgment creditors have lots of options, people who have a judgment against them, called a judgment debtor, have many protections under the law.

A judgment creditor can find out about your income, assets, and property by serving you with an information subpoena. An information subpoena is a set of questions that you have to answer truthfully. If you do not, you could be held in contempt of court, which means the judge may fine you, or even put you in jail.

A judgment creditor cannot take money each month, or garnish, many kinds of income because they are protected by the law. These kinds of protected income include:

  • Social security (retirement or disability)
  • SSI
  • Unemployment benefits
  • Veteran=s administration payments
  • Temporary Assistance (Family Assistance or Safety Net)
  • Court-ordered child support or spousal support
  • Workers compensation
  • pension


Wage Garnishments

If you work, the judgment creditor may be able to garnish your wages. Garnishment means taking some of your employment income each pay period until the judgment is paid. The judgment creditor will hire the sheriff to garnish your wages. The sheriff should first send you a notice to voluntarily pay. If you don’t voluntarily pay in twenty days, the sheriff will contact your employer and tell your employer to garnish your wages. The highest wage garnishment that is allowed is 10% of your gross income. But, the law protects low income workers, and a wage garnishment can be less than 10% of your gross. Continue reading for an overview of these protections.

 How much can be garnished depends on your gross income, your disposable income, and the minimum wage. Gross income is your earnings before anything is taken out of your paycheck. Disposable income means the money left after your employer deducts things required by law like taxes, social security, and unemployment insurance. Deductions made for things like insurance or union dues are not included when figuring out your disposable income.



Frozen Bank Accounts

A judgment creditor may contact your bank to restrain, or freeze, your account. This means that the bank can send money in your bank account to the judgment creditor to pay the judgment.

The bank should send you a form called an Exemption Claim Form to fill out and return to the bank within twenty days. You should include proof of your exempt income, like award letters, and the past two months of bank statements with the Exemption Claim Form. The kinds of protected income are:

  • SSA- Social Security
  • Social Security Disability (SSD)
  • Supplemental Security Income (SSI)
  • Public Assistance
  • Income you earned while receiving SSI or public assistance
  • Veterans Benefits
  • Unemployment benefits
  • Payments from pensions or retirement accounts
  • Disability benefits
  • Income earned in the last 60 days (90% of which is exempt)
  • Workers Compensation benefits
  • Child Support paid to you
  • Spousal support or maintenance paid to you (alimony)
  • Railroad retirement
  • Black lung benefits

If you do return the Notice of Exempt funds, the judgment creditor may object, and you will have to go in front of a judge to decide if your money in exempt from collection. If you return the Notice of Exempt funds to your bank and your bank does not hear from the judgment creditor, they should release the freeze on your account.

If your account includes money from exempt sources and non-exempt sources, the judgment creditor is supposed to figure out how much money in your account is from non-exempt sources using complicated accounting rules. If you have income that is exempt and non-exempt, you should put them in separate bank accounts.



If you own real property, like a house, a judgment creditor may place a lien on it. A lien is a notice that is attached to your property, is a public record, and tells the world that you owe a creditor money. A buyer typically won’t agree to buy your home unless it’s free of liens. A judgment creditor may try to force you to sell your home to pay the judgment. But, if the real property is your home, it can be exempt from being sold if your home equity is less than a certain amount. Equity is the value of your home, minus what you still owe on the mortgage. Generally, if your home equity is less than $82,755.00, then your home is exempt from being sold to satisfy a lien. In Albany, Columbia, and Saratoga counties, the equity can be less than $137,950.00. Remember, this protection is for judgments already entered in court. If you owe on your mortgage, the bank may sue you in a foreclosure lawsuit to sell your home to pay the mortgage.




Bankruptcy is a court proceeding that helps people with a lot of debt have a “fresh start”. There are many types of bankruptcy but for individuals the two most common are Chapter 7 and Chapter 13. One hundred eighty days before filing for bankruptcy, you will have to take an approved financial counseling course. It is not wise to pay back debts to friends or family in the year before you file, because any debts you pay to friends or family over $600.00 can be considered an unfair preference, and could be recovered by the bankruptcy court and paid to other creditors. As soon as you file for bankruptcy, an automatic stay is ordered and remains until your bankruptcy is complete or the judge lifts it. This means creditors must stop taking certain actions against you, including:

Utility companies cannot turn off your utilities for 20 days. During the first 20 days after filing bankruptcy, if you wish to restore utility services that have been shut off or prevent a shut off, you must provide the utility with adequate assurance. Adequate assurance is normally provided to a utility in the form of a cash deposit. The amount is typically similar to the deposit required of new customers.

Generally, your landlord cannot evict you unless he or she already has a judgment of possession.

Foreclosure proceedings, wage garnishments, and collection due to overpayment of public benefits must stop. Filing does not prevent an agency from terminating or denying benefits. Unless a judge orders otherwise, the stay will remain until your bankruptcy is complete.

There are some kinds of property the court will not take to repay creditors. These are similar to the property and values protected from judgments, outlined above. Also, some kinds of debts are not dischargeable in bankruptcy. For example, these kinds of debts will not be discharged:

  • Luxury goods worth $500 or more purchased w/in 90 days of filing
  • Cash advances of $750 or more made w/in 70 days of filing
  • Spousal/child support debt
  • Student loans
  • Past three years of unpaid federal and state income tax
  • Government fines and penalties

In a Chapter 13 Bankruptcy, you will agree to a 36 to 60 month payment plan (3 or 5 years) approved by the court to pay off your debts. Debts are paid off in order of priority. First, court administrative fees, child & spousal support, unpaid federal & state income taxes, criminal fines, and student loans are paid. These debts must be paid IN FULL. Second, secured debts are dealt with (see below). Finally, any unsecured debt (credit cards, medical bills, rent, etc.) will be paid to the extent the court believes is reasonable. Any unsecured debt that is not part of the payment plan will be discharged.

Unlike Chapter 7, the court does not take all your assets. The only property that may be taken is collateral property you used to secure a loan. If you want to keep collateral put up for secured debts (mortgage, car, etc), you must either redeem (pay the current value of the collateral, which may not cover the full debt) or reaffirm (agree to pay off the full debt as part of the payment plan). If you give up the collateral, it will be sold, the proceeds will go toward the debt, and any remainder owed on that debt will be treated as unsecured debt. If you have secured debts, you must file a Statement of Intention, telling the court whether you plan to redeem, reaffirm, or give up collateral. If you have regular income and will be able to make regular payments for the next 3 to 5 years, Chapter 13 may be a good idea if you:

  • Want to keep property put up as collateral on a secured debt that is in arrears
  • You want to keep assets that are not exempt under Chapter 7

 You should consult an attorney for advice about whether bankruptcy is a good idea for you


Credit Reports

Credit reports help creditors or banks to decide if they will give you a loan or mortgage. The report can also be used by potential employers or insurance companies. Your credit report can affect your ability to get a loan or how much your payments on a loan will be. These reports include details like where you live, if you pay bills on time, and whether you have ever filed for bankruptcy. Bankruptcies may be reported for up to seven years on a credit report. A judgment from a New York court could appear for twenty years, but many credit reporting agencies only report them for seven. Records of an arrest may be reported for up to seven years, but a criminal conviction can be reported forever. Money that you on an account can be reported for seven years after the first missed payment.

You can get a free credit report one time every twelve (12) months. To do so, order a free credit report:

  • On the Internet:
  • On the phone: call 1-877-322-8228
  • By mail – complete the Annual Credit Report Request Form found at:

Mail the completed form to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281

Sometimes, the information in the report is wrong. If the information is wrong, you can dispute it. To do that, you should write to the consumer reporting agency. You should send them a copy of the consumer report and circle what information is wrong. Also include a letter telling them why the information is wrong. You can send copies of documents that show the correct information, like a receipt for paid bills. You can also contact the organization that provided the information to the consumer reporting agency.

Both the consumer reporting agency and the organization that gave them the information must investigate the information you dispute. They must mail you a letter about their investigation once it is done. That notice must tell you that the investigation is complete; if the consumer report was changed; and that you have a right to request more information. You may request information such as how they investigated and what organizations gave them information. If they find that the information on the report was not correct, then they must correct or delete the information within thirty (30) days.


Harassment by Creditors

Debt collectors are paid to collect debts on behalf of creditors. They sometimes use illegal and abusive methods to collect debts. Luckily, you have rights! Debt collectors must inform you in writing within 5 days of their first contact of the amount you owe, the name of the creditor to whom you owe the money, and what action you can take if you dispute the debt.

If you believe you do not owe the debt, you have the right to dispute and request verification of the debt. You should do this in writing, within 30 days of receiving the first collection notice in order to preserve your rights and stop further collection action.

 You can STOP most contact from a debt collector by writing them a Cease Letter. A cease letter demands that the debt collector stop contacting you. Once the collector receives that letter, she can only contact you to let you know that he received the cease letter or to inform you of actual actions she plans to take, such as bringing a lawsuit.

The Fair Debt Collection Practices Act (FDCPA) says debt collectors cannot:

  • Tell third parties like family, neighbors or friends about your debt.
  • Contact you after you’ve written them a cease letter (except to tell you they received the letter and the next steps they plan to take to collect the debt.
  • Call you at work if they know you should not receive calls at work.
  • Call you repeatedly or frequently
  • Call you before 8 a.m. or after 9 p.m.
  • Contact you in a public manner, like sending a postcard or publishing your name.
  • Threaten you
  • Make obscene or derogatory remarks
  • Impersonate the police or another government official

If you believe a debt collector has violated your rights, you can sue them under the FDCPA. You typically have one year to start a lawsuit from when a debt collector violated the FDCPA. Also, you can file a complaint against the debt collector with a number of government agencies.

  • You can file a complaint with the Federal Trade Commission by


Cease Letters: Stop the Harassment

The following two letters can be used to stop a debt collector from contacting you. These letters can be sent to anyone the creditor is using to collect the debt. If you send the letter to a creditor who does not identify himself as a debt collector, you should remove the language threatening to file a law suit. Although a creditor will usually comply with your request, the restrictions on how a debt can be collected are much stronger with respect to debt collectors.

Simply fill in the blanks with the debt collector’s name and address, your account number and name, and your signature and address. These letters should be sent by certified mail, return receipt requested. The Post Office can show you how to do this. Keep a copy of any letters you send for your records.

If you receive SSI, SSDI, welfare (Family Assistance or Safety Net), unemployment, worker’s compensation, court ordered child support or spousal maintenance, or pension, you should use the second letter. This will help to ensure that those funds remain protected from creditors and debt collectors.

Be aware that while these letters will stop further contacts from the collection agencies in most cases, it will not stop them from suing you in court and it will not stop the debt from increasing.








(Debt collector name and address)


Account Number and Name: _________________________


Dear Sir/Madam:

I do not acknowledge this debt. I am writing to demand verification of this alleged debt. Under the Fair Debt Collection Practices Act, 15 USCA 1692g (b), you must cease collection activities until you provide me with this verification.

After verification is provided, I demand that you stop all further contact with me and with anyone else concerning any alleged debt to you. Under the Fair Debt Collection Practices Act, 15 USCA 1692c (c), you must stop all written or telephone contact upon receiving this demand. In the event that you make further contact, I will proceed accordingly, which may include a report to the Attorney General’s office and/or a lawsuit.


Insert name and address








(Debt collector name and address)


Re: Account Number and Name: _________________________


Dear Sir/Madam:

I do not acknowledge this debt. I am writing to demand verification of this alleged debt. Under the Fair Debt Collection Practices Act, 15 USCA 1692g (b), you must cease collection activities until you provide me with this verification.

At the current time I am unable to pay this debt as my only source(s) of income is/are: (check all those that apply)

  • SSI
  • SSDI
  • Welfare (Family Assistance or Safety Net)
  • Social Security retirement
  • Unemployment Insurance Benefits
  • Court-ordered child support or spouse maintenance
  • Worker’s Compensation
  • Veteran’s Administration check
  • New York State Pension

After you provide verification of the debt, I demand that you stop all further contact with me and with anyone else concerning any alleged debt to you. Under the Fair Debt Collection Practices Act, 15 USCA 1692c (c), you must stop all written or telephone contact upon receiving this demand. In the event that you make further contact, I will proceed accordingly, which may include a report to the Attorney General’s office and/or a lawsuit.






Instructions for using credit report dispute letter

Use the letter below as a guide to report mistakes on your credit report to a Credit Reporting Agency. If you find something wrong with your credit report, you should dispute it. The parts of the letter that have brackets around them, like “[“ and “]”, are where you should fill in information about your credit report. You may want to include a copy of your credit report and circle the parts that are mistakes. You may want to include other copies of documents that help explain why the credit report has a mistake, like a statement that a bill was paid in full. You should keep of copy of this letter for your records, and send the letter by certified mail, return receipt requested so you have proof the credit reporting agency received it.

For the three major Credit reporting agencies, you can complete the dispute process online, or mail your letter to the addresses provided below:



By mail: Download and complete the dispute form:

Mail the dispute form with your letter to:
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374

By phone: Phone number provided on credit report or (800) 864-2978




By mail: Use the address provided on your credit report or mail your letter to:
P.O. Box 4000
Allen, TX 75013

By phone: Phone number provided on credit report or (888) 397-3742




By mail: Download and complete the dispute form:

Mail the dispute form with your letter to:
TransUnion Consumer Solutions
P.O. Box 2000,
Chester, PA 19022-2000

By phone: (800) 916-8800



[Date] [Your name] [Your return address]


Complaint Department
[Company Name] [Street Address] [City, State, Zip Code]


Dear Sir or Madam:

I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.

This item [identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.] is [inaccurate or incomplete] because [describe what is inaccurate or incomplete and why]. I am requesting that the item be removed [or request another specific change] to correct the information.

Enclosed are copies of [use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents] supporting my position. Please reinvestigate this [these] matter[s] and [delete or correct] the disputed item[s] as soon as possible.


[Your name] [Phone number]

Enclosures: [List what you are enclosing.]