FREE CONSULTATION • CALL US 24 / 7 212-994-7777

Debt Collection

When a Creditor is Collecting a Debt

Creditors may contact you directly about a debt you owe them.   For example, your credit card company may call you to remind you that you have not been making the minimum payments necessary to keep your account from defaulting. Generally, federal consumer protection laws regarding fair debt collection do not apply in these situations, but the creditors are still required to comply with New York State law governing debt collection.

Consumer debt is a significant issue in the U.S.  Debt collection practices and consumers protections are heavily regulated by law.  At the federal level, consumer debt collection is primarily regulated by the Fair Debt Collection Practices Act; while in New York, the New York State Debt Collection Procedures Law applies.  Both statutes seek to protect consumers from abusive, unfair, or misleading practices by collection agencies.  Debt collectors must take care not to violate these laws and to adequately train staff to avoid liability and resolve matters legally.

Federal and State law prohibits “unfair or unconscionable means” in debt collection. The New York State Debt Collection Procedures Law prohibits creditors (and their agents) from:

  • communicating the nature of your debt to your employer prior to obtaining a judgment against you;
  • threatening to take an action that it can not or would not normally undertake;
  • threatening to collect a fee over and above the debt that you owe;
  • communicating with you in a manner which simulates a judicial process or which gives the appearance of being authorized or issued by a governmental entity; and
  • contacting you or a family member with such frequency or at such unusual hours as can be reasonably considered abusing or harassing you.

Federal and state laws also require debt collectors to follow certain practices, including:

  • Notifying consumers that they are debt collectors and that the communication is an attempt to collect a debt.
  • Providing the name and address of the creditor on request.
  • Sending the consumer a notice of his or her right to dispute the debt.
  • Providing verification of the debt on written request.
  • Selecting the venue where the consumer lives or signed an agreement if initiating a lawsuit.

Debt collection issues arise frequently.  Business owners and service providers seeking payment of owed money or persons on the receiving end of harassing or inappropriate debt collection efforts will encounter legal issues relating to debt collection.  There are many laws governing debt collection practices and they vary depending on the type of debt and other circumstances.  An attorney can assist you in enforcing your rights and resolving collection matters in compliance with all applicable rules.

When Does Debt Collection Become Harassment?

Under the Fair Debt Collection Practices Act (“FDCPA”), it is illegal for a collection agency's debt collectors to call you during specific times. These times are generally before 8 AM, or after 9 PM, in your time zone. The FDCPA also bars collectors from the following unfair debt collection practices:

  • Calling a debtor at work;
  • Harassment;
  • Using abusive language;
  • Making false or misleading statements;
  • Adding unauthorized charges; and/or
  • Making threats.

If a debt collector violates the FDCPA, a debtor may sue them for economic, non-economic, or statutory damages. Debtors may also be entitled to an injunction, as well as payment of attorney's fees.

It is important to note that there may also be State laws regarding the collection of debts. For example, in Texas there is the Texas Fair Debt Collection Practices Act, which offers additional protections for debtors. California has the Rosenthal Fair Debt Collection Practices Act. Thus, it is very important to also research your State's laws on debt collection, as such laws may offer additional protections. 

Is it Possible to File a Complaint Against a Debt Collector?

You should keep copies of all letters and documentation that a debt collector sends you. You should also keep copies of all correspondence you send to the debt collector. Another example of relevant information that you will need to maintain is the dates and times of conversations between you and the debt collector, along with notes detailing what you discussed during the conversations. Such records will support your case if you find yourself having a dispute with a debt collector which will require you to meet with a lawyer, and potentially go to court.

If you believe you are being harassed by a creditor or a debt collection agency, you can submit a complaint with the CFPB. The CFPB, or Consumer Finance Protection Bureau, exists to protect consumers and debtors from unfair, deceptive, and./or abusive practices. They also take action against companies that break consumer protection laws.

As a government agency, the CFPB ensures that banks, lenders, and other financial companies are treating their debtors fairly. One way the bureau accomplishes this is by providing sample letters that a debtor may send to their creditors. These letters are intended to help creditors who:

  • Need more information;
  • Do not actually owe the debt;
  • Wish for the debt collector to cease contacting them while they dispute the debt;
  • Wish for the debt collector to only contact them through their attorney; and/or
  • Wish to specify how the debt collector may contact them.

The process for filing a complaint through the CFPB is as follows:

  • The complaint is submitted through the CFPB website, or by phone;
  • The complaint is forwarded to the debt collection company;
  • The company reviews the complaint and communicates with the complainant as needed, and reports back to the bureau regarding steps taken to remedy the complaint;
  • The complaint is published to the bureau's Consumer Complaint Database; and
  • The bureau informs the debtor of when the collections company responds.

What are Legal Debt Collection Limits?

Debt can be extremely stressful, especially for individuals who are on a strict budget. Sometimes, repayment may feel impossible. Fortunately, the Consumer Credit Protection Act limits the amounts and property a debt collector is permitted to seize. Each state also has laws regarding debt collection.

Some exemptions from debt collectors under many debtor protection laws include:

  • Wages;
  • Necessities;
  • Vehicles; or 
  • Harassment.

Generally, a creditor cannot seize more than a certain percentage of a debtor's wages. The maximum amount a creditor can seize is 25% of a debtor's disposable income under federal law and in most states. There are more exemptions to wage garnishment that will be discussed below.

In addition, creditors are not permitted to seize a debtor's food, clothing, or other necessities. This may include electronics such as computers and televisions.

Creditors are generally note permitted to seize or sell a debtor's automobile. If a debt collector is permitted to seize a vehicle, it may be protected from sale if the value is less than a certain amount, usually $2,000. A vehicle is typically always protected from seizure if it is used in the debtor's business as a tool in their trade.

A debtor is legally protected from harassment or public embarrassment. A creditor cannot discuss the debtor with others, except a credit reporting agency or an official directly involved in the collection efforts. If a debt collector violates unfair collection practices laws or harasses a debtor, they may be subject to fines or a lawsuit from the debtor.

What are the Limits on Seizing a Debtor's Wages?

As noted above, federal and state protection laws are in place that prevent the seizure of too large a percentage of a debtor's wages. Many of these laws are specific to the debtor's state of residence. 

In general, if a debtor's income is very low, they are exempt for income seizure. A debtor must be left with 30 times the federal minimum wage of their income. Minimum wage is currently $7.25, leaving a worker with a weekly wage of $217.50. 25% of the remaining income above this minimum wage may be seized. This may differ if the state minimum wage differs, such as minimum wages in the following states:

  • California – $8.00; 
  • Florida – $7.03; 
  • Illinois – $8.25; and
  • New York – $8.00. 

If more than one party is seizing a debtor's income, a debt collector may only seize wages if the other party is taking less than 25% of the debtor's disposable income. If a debtor needs the income for basic support, they may be able to object to having a collector seize any funds from their paycheck.

It is not possible for a debt collector to seize funds from Social Security benefits or a pension. If an individual has a judgment against them for child or spousal support, the debt collector may be able to seize funds from sources including:

  • Unemployment insurance; 
  • Worker's compensation awards;
  • Relocations benefits; or 
  • Disability or health insurance benefits.

Statute of Limitations on Debt Collection

A statute of limitation refers to the amount of time that an individual has to bring a lawsuit. Statutes of limitations can vary depending on the type of case and they can also vary state by state.

When it comes to debt collection, a statute of limitation is the amount of time that a creditor can ask the court to force a debtor to pay. Because the court system does not keep track of the statute on your debt, it is your responsibility to prove that the debt has passed its statute of limitation.

What are the Different Types of Debt?

There are four main types of debts and it is important to know which type of debt you have because the statute of limitation is different for each type. If you are not sure regarding what type of debt you have, it is important to check with an attorney. The four types of debt are:

  • Oral Agreements: These refer to debts which were incurred based on an oral contract. In this type of contract, you only made a verbal agreement to pay back the money and there is nothing in writing.
  • Written Contracts: These refer to debts which come from a contract that was signed by you and the creditor. 
    • A written contract must include the terms and conditions of the loan such as the amount of the loan as well as the amount of the monthly payment.
  • Open-Ended Accounts: These are accounts with a revolving balance that you can repay and then borrow again. 
    • Examples of open-ended accounts are credit cards and lines of credit. If you can only borrow the money on time, then it is not considered an open-ended account.
  • Promissory Notes: These are written agreements to pay back a debt in certain payments, at certain interest rate and by a certain date and time. 
    • Some examples of promissory notes are mortgages and student loans.

What are Time-Barred Debts?

Time-barred debts are debts that have passed the statute of limitation. This means that creditors and debtor collectors will not be able to sue you for this debt because the statute of limitation has expired.

However, this does not mean that you do not owe money just because the debts have aged past the statute of limitation. But if the statute of limitation has expired, this means that the creditor will not get a judgment against you as long as you can show the court proof that your debt is too old. Some examples of proof are your own records of communication that you have made regarding that debt or a personal check which shows the last time you made a payment.

What Happens to Time-Barred Debts?

The Fair Debt Collection Practices Act prohibits debt collectors from suing or even threatening to sue you for a time-barred debt but it is possible that some debt collectors may violate these provisions. If you happen to be sued for a time-barred debt, it is important not to ignore it on the assumption that it will take care of itself or that it does not matter because the statute of limitation has expired.

The creditor or collector could obtain a default judgment against you and an order to garnish your wages if you do not pay the judgment. Thus, if you are improperly sued for a time-barred debt, it is important to provide the court with proof that the statute of limitation has expired.

Also, it is important to remember that collection activity is still allowed on time-barred debt and just because the statute of limitation has expired, this does not mean that the creditor cannot still come after you for the debt.

Creditors and debt collectors can still collect time-barred debts with calls and letters as long as they are doing it within the bounds of the law. Also, time-barred debts can appear on your credit reports if the credit reporting time limit has not expired.

What are the Laws Regarding the Statute of Limitation for Debt Collection?

The statutes of limitations for debt collection vary state by state and they also vary based on the type of debt that you have. For example, in the state of California, the statute of limitation for debts incurred from oral contracts is 2 years while for debts incurred from written contracts, promissory notes or open-ended accounts, it is 4 years.

In contrast, in the state of Florida, the statute of limitation for debts from oral contracts and open-ended accounts is 4 years while it is 5 years for debts from written contracts or promissory notes.

Should I Contact a Lawyer?

As previously mentioned, once you hire an attorney to represent you against a debt collections agency, they may no longer contact you directly and will need to go through your attorney instead. Thus, it may be in your best interest to hire a local bankruptcy and finance lawyer if you need assistance with debt-related matters. 

An experienced bankruptcy and finance lawyer can apprise you of your rights as a consumer under the relevant laws, can determine whether your claim is strong enough to file a lawsuit against a debtor collections agency, and can ensure that your rights are being sufficiently protected throughout the process.

Additionally, your lawyer can identify the ways in which a debt collector may have violated collection laws, can suggest other options for legal recourse aside from going to court (if possible), and can explain the potential types of remedies that you may be able to recover if your case is successful.