Debt Collection Basics
What is a creditor?
A creditor is a person or firm to whom money is owed. The creditor gives
something of value to a borrower in exchange for a promise that the borrower
will pay them back at a later date. Creditors come in all shapes and sizes.
They may be credit card companies, banks, hospitals, local medical professionals,
or any other person or company to whom a debt is owed.
What are secured debts and unsecured debts?
A secured debt is a debt or loan that is guaranteed by collateral. Collateral
is an item of value that the creditor may take as payment if the debt
remains unpaid. Common examples of secured debts include mortgages or
car loans. A secured credit card is back by a savings account or other
collateral and the credit limit is usually based on the value of the collateral.
A debt or loan is unsecured if it is backed only by a promise to pay at
a later date. Most credit cards and medical debts are unsecured.
If a debt is not paid, creditors will almost always turn the debt over
to a collection agency. Medical creditors tend to turn debts over to collection
agencies quicker than other types of creditors. Credit card companies
may keep the debts for longer because they often have their own collection
departments. If you are facing financial difficulties and will not be
able to make payments, it is important to inform your creditor about such
Creditors may sell your debt to another company. The buying and selling
of debts is legal and has become a growing practice in the United States
and worldwide Many, if not most, creditors will eventually sell delinquent
debt accounts to a company that specializes in buying and collecting on
old debts. These debt buyers are held to similar standards as the creditors
and are required to report debts accurately and treat borrowers fairly.
Most debts may only appear on your credit report for seven years, starting
at the date of delinquency. This start date does not change regardless
of the number of times the debt is bought and sold. The debt buyer has
a legal obligation to ensure that all information regarding the debt is
up to date and accurate, including the date of delinquency. In certain
cases, the debt buyer may use the date it received as the date of delinquency.
This practice is illegal and consumers have right to dispute the date
used in their credit reports.
Debt Collection Lawsuits
If a debt remains unpaid, creditors may sue for the remainder owed. In
some cases, creditors may be less likely to sue if: (1) voluntary payments
are made; (2) the debt is disputed and a reasonable defense has been raised;
(3) the debt is less than $1000; or (4) the creditor does not have a history
of suing people. If you have been sued by a creditor, respond. It is never
a good idea to ignore a creditor’s lawsuit. It is important to contact
an attorney for legal advice.
In New York, the statute of limitation for filing a debt collection lawsuit
is six years from the date of default. A statute of limitations is a time
limit for filing a law suit. The date of default is approximately one
month after your last payment. However, in certain cases concerning credit
cards, the statute of limitations may be as short as three years from
the date of default. If the creditor receives a judgment against you,
the statute of limitations for collecting the debt is twenty years.
Creditors may sue you for an old debt for which the statute of limitations
has expired. However, this may be asserted as a defense in court. If you
appear in court and raise this defense, the court will dismiss the case
against you. However, if you do not appear, the judge will enter a default
judgment against you and you will be liable for the judgment amount even
though the statute of limitation had expired. Unless the default judgment
is vacated, the creditor has twenty years to collect this debt.