Being sued over a debt is frightening and stressful. And many New Yorkers are extremely uncertain of what their rights are, or of what they can expect when the lawsuit is done.
Here are four things you need to know so you can navigate this situation appropriately.
Avoid paying old debts.
The first thing you should know is there’s a statute of limitations in New York that runs six years from the date of your last payment. Sometimes third party debt buyers will buy old debts hoping they can talk you into paying them. Unless you pay off the whole thing their next move may be to sue.
In fact, many of them buy these debts with the express purpose of suing.
You should always ask who the original creditor was when a debt collector calls, and you should try to keep track of who you’ve paid and when you’ve paid them. Restarting statute could be a complication you don’t need.
Judgements in New York have severe consequences.
A judgement in New York entitles creditors to garnish your wages. They may go after certain assets as well.
Some assets are untouchable. These include public assistant, retirement income, workman’s comp income, unemployment income, veterans benefits, child support, and alimony. Your utility deposits are similarly exempt, and up to certain limits so is equity in your home and car. Unless you used them to secure a debt, creditors can’t seize any of your furniture, household goods, or clothing either.
For most people the threat of wage garnishment is bad enough. People with very low incomes may also be exempt from wage garnishment, but few people with middle class incomes can afford to have a creditor taking money out of their paycheck every week. Especially not in New York City. And if the creditor was your student loan provider, you could even face job loss.
To add insult to injury, judgements accrue 9% interest per year, and if you can’t pay you’ll watch that balance continue to climb. The creditor will have 20 years to collect the debt.
Being judgement-proof won’t stop the lawsuit.
You’re considered “judgement-proof” if you don’t have any assets a creditor could touch. The judgement will still be on your credit report, but it may not affect your day-to-day life.
But creditors don’t really worry about whether you’re judgement proof or not. They will seek the judgement anyway, because they reason you might always receive an inheritance, a big insurance payout, or a lottery win. You may also return to work someday. If your circumstances change, they want to be right there to collect.
Some creditors will work hard to make your life difficult even if you are judgement proof.
Doing nothing is your worst option.
A lot of people bury their heads in the sand when presented with a debt lawsuit. They either figure they owe the money, so there’s no defense, or they just don’t know what to do.
This will result in a “summary judgement,” which means the creditor wins uncontested. Challenging a summary judgment is much harder than challenging a creditor lawsuit in court.
And in truth, by the time creditors are coming after your wages and assets, you’re in real trouble. It’s probably time to talk about filing for bankruptcy. Either way, you need solid legal help when the Summons and Complaint arrives.