New York City Debt Collection Defense Attorney

Prioritize Consumer Debts Based on Risk. A Comprehensive Legal Guide

Debts of Highest Priority

Court Judgments: A judgment is a court order in favor of the creditor. Now as a “judgment creditor,” it can garnish your wages, freeze your bank accounts, and foreclose on your property. Here is a blog outlining how bank freezes happen. Here is some basic procedure to claim exemptions to release exempt funds (i.e. social security benefits, disability payments, and recent income). Here are some tips about vacating (overturning) judgments. Here are the general time limits to vacate judgments. Here are some excuses to tell the court when doing so.

Home rent: Being evicted without shelter is the obvious reason why your landlord is a high-priority creditor. An eviction may also block you from getting new housing while damaging your credit health. Remember to check your lease for notice requirements if you need to find a cheaper apartment before breaking your lease. Breaking a long-term lease will subject you to owing the entire lease liability (“contractual damages").

Criminal justice debt: These are fines, fees, costs, and charges related criminal, traffic, and municipal violations. They include traffic tickets, costs of prosecution against you for misdemeanors and felonies, and jury fees. Neglect these debts and you may lose your driver’s license, income, assets, or wind up in jail.

Child support debt: Neglect these, and you’re looking at a potential prison term, not to mention continual wage garnishments. Here is a helpful guide that explains New York’s Child Support Enforcement Program. Should you violate a child-support order, your wages, unemployment insurance benefits, property, driver’s license, and passport may all be confiscated to satisfy the debt.

Auto loans and auto leases: Missed payments may lead to a swift repossession leaving you without a car for work. For the deficiency balance (what you owe under the contract), you may be sued and be at risk for a court judgment. Repossessions are usually preceded by a “Notice to Cure Default.” In some cases, being proactive and selling the car before repossession—to yield a higher sale—may allow you to pay the lender in full without incurring high charges. Check your rights under the lease, and under state law.

Utility bills: Delinquent utility bills can lead to termination of electric, water, gas, or other utility services. You do have rights under your state’s public-utility commission. For example, notice, dispute procedures, a right to a hearing, and an option for a payment plan may be rights provided under law.

Debts of Medium Priority

Home mortgage: Miss enough payments and you are looking at a foreclosure proceeding. Some states permit foreclosures without a court hearing. You may want to look for a nonprofit housing counselor in your city. Since it’s expensive to foreclose, lenders have their servicers work with you to get a solution before foreclosure (“loss mitigation”). For example, Covid-19 related options are in place with servicers for Fannie Mae, Freddie Mac, FHA, VA, and RHS (“federally backed”).

Federal tax debt (IRS): As a preferred creditor, the IRS stands early in line to be repaid. If not paid, the IRS can seize your bank accounts, garnish your wages, and even force a sale of your home. Penalties and accruing interest turn small tax debts into sizeable ones. You should file your returns even if you can’t pay the taxes. Doing so would avoid late-filing penalties. To resolve federal tax debt, you may 1) enter into an Installment Payment Agreement; 2) pay less than what you owe via an “Offer in Compromise; or 3) get collection relief by proving that you’re “Currently Not Collectable.” This option does not forgive or reduce the debt; It just postpones collection.

Debts you owe as a co-signer: I see many co-signers sued for defaulted auto loans. These legal promises were usually made when the relationship was rosy. But life happens, and relationships deteriorate. Generous co-signers are often left in the dark when the primary obligor (debtor, driver of the car) defaults on the loan. Giving relationship advice transcends my capabilities. But I will suggest deep caution before co-signing a loan. Auto repossessions quickly turn into deficiency lawsuits, which quickly turn into court judgments against co-signers.

Deficiency actions after an auto repossession: Deficiency cases (sued for balance of the auto lease) quickly follow repossessions. Borrowers and co-signers may be sued together or separately. By the time of a repossession, however, damage to credit has probably already occurred. If a judgment is entered against you, the debt escalates to high priority.

Real estate taxes: If your mortgage lender isn’t paying your property taxes through an escrow account, you are responsible for those taxes. Delinquent property taxes could lead to a tax sale of your home. Procedures are in place for challenging the assessment (value) of your home. Check your local tax board rules. Also, consider the possibility of an abatement, exemption, or deferral program.

Federal student loans: A default occurs after nine months of non-payment. At this point, you risk an administrative wage garnishment (without a court order), seizure of your tax refund, social security benefits, and other federal benefits. You may also be denied new student loans and grants. There is no time limit for the collection of federal student loans. But you have special rights to cancel, reduce or delay your payment obligations. Your rights will depend on the type of loan (i.e. Direct Stafford, FEFL, PLUS, and Perkins).

Debts of Lower Priority

Medical debt: These debts include money owed to hospitals, ambulance companies, doctors, physician practice groups, and dentists. These debts generally don’t involve high interest rates and will likely not affect your credit scores for 6 months. It may take years before a lawsuit arises, if at all. But if a lawsuit materializes into a judgment, you’re back in the highest-priority category. Do not pay medical debt with a credit card. Do not take out a second mortgage to pay medical debt. Here is a list of 11 consumer friendly medical-debt laws in New York.

Credit-card debt: Although the interest is obnoxious, and their snowball effect remains constant, credit-card debts (without a judgment) do not impose a heightened legal threat. Credit-card debt is dischargeable in bankruptcy. Aggressive debt-collection tactics occur shortly after a delinquency so make sure that you know your rights under the Fair Debt Collection Practices Act. Your credit score is likely to take the biggest hit when your payment is 30 and 60 days late. After the card is 60-days overdue, the card issuer can increase the interest rate. After 180 days of default, the creditor will likely charge-off the card, and turn it over to a collection agency who will then open a new collection account in your credit report.

Private student loans: Unlike federal student loans, private lenders do not have the authority to institute a wage garnishment or asset seizure without a court order. You typically do not provide collateral for private student loans. Your home is generally not in jeopardy until the lender gets a money judgment. Private student loans are difficult to discharge in bankruptcy, however. A defaulted private student loan may show up on your credit report.

Debts owed to friends and relatives: Friends and family are unlikely to sue you for a debt owed. But it still happens. Friends and family will not report the debt to credit bureaus. Reputational and stigma issues are of course unique and real. Dave Ramsey advises to treat these loans as gifts to avoid unnecessary fall outs in good relationships. That’s great advice.

If you need more advice or assistance, feel free to contact us right away. We are licensed to Practice in New York only.