Debt Collection Basics

What is a creditor?

A creditor is a person or company who gives you something of value — goods, services, or money — in exchange for your promise to pay them back at a later date.  A creditor can be a credit card company, a bank, a hospital, your local dentist, or any person or company to whom you owe a debt.

What is a secured debt or loan?

A debt or loan is “secured” if it is backed by a thing of value, also called “collateral.”  If you don’t pay the debt, your creditor will take the collateral as payment.  Common examples of secured debts are mortgages and car loans.  Some stores make secured loans for household appliances like refrigerators and washing machines.  A secured credit card is backed by a savings account or other collateral; the credit limit is based on the value of the collateral.

What is an unsecured debt or loan?

A debt or loan is “unsecured” if it is backed by your promise to pay at a later date, without savings or collateral as a guarantee.  Most credit card and medical debts are unsecured.

How do I prioritize which debts to pay first?

Deciding which debts to pay first is a personal decision that is different for many people.  But, in general, providing necessities for yourself and your family is the most important, and unsecured debts, like credit card bills, are usually the lowest priority.  You should make at least the minimum payment if you can, but you should not risk your health or housing to pay a credit card bill.

If I owe money to a creditor, what can the creditor do to me?

If the debt is unsecured, the creditor can:

If the debt is secured, the creditor can sometimes take back the collateral without a court order.  However, a creditor MUST have a court order (called a foreclosure order) to take back your home.

Will my creditor send my debt to an outside collection agency?

If you have an outstanding debt, and you stop making payments, your creditor will almost always turn the debt over to a collection agency.


Know Your Rights!

Debt collectors are closely regulated by a federal law called the Fair Debt Collection Practices Act, which requires that debt collectors treat you fairly.  Do not let debt collectors pressure you into making bad decisions!  For more information on your rights under the Fair Debt Collection Practices Act, look here or call the NYC Financial Justice Hotline at 212-925-4929 (or click here to request assistance).


How long does it take for my creditor to send my debt to a collection agency?

There is no clear rule.  Generally speaking, medical creditors — such as doctors, dentists, and hospitals — are quicker to turn debts over to collection agencies.  Credit card companies, which have collection departments of their own, may keep the debt for a longer period of time.

Is there anything I can do to prevent my creditor from sending my debt to a collection agency?

Yes.  Contact your creditor as soon as you know that you are facing financial difficulties and will not be able to make payments.  Explain that you have to pay your rent or mortgage, utilities, and certain other bills first, and that you do not have enough money to pay the creditor now, but you will pay when you can.  Be polite and honest but firm, and make clear that you will not pay a collection agency either.  If all goes well, your creditor will conclude that you will pay when you can, and so it need not go to the expense of hiring a collection agency.  This strategy works best for those who have suffered a temporary financial setback — such as a job loss, divorce, or temporary illness — but expect to be back on their feet shortly.

If you are struggling to pay high interest credit card debts, you might want to try contacting a community development credit union in your area.  Community development credit unions are member-owned financial institutions serving specific neighborhoods.  They offer members a broad range of services, including financial counseling and, if you qualify, debt consolidation loans on fair terms.  You can find a list of community development credit unions in New York City here.

If you need assistance to determine whether one of these options is right for you, and you live in New York City, call the NYC Financial Justice Hotline at 212-925-4929 for a referral to a community organization near you, or click here to request assistance.

Can my creditor sell my debt to another company?

Yes.  Buying and selling debts is legal, and it is a growing practice worldwide.  In fact, these days it is more likely than not that your creditor will eventually sell your debt to a company that specializes in buying and collecting old debts.  These companies are called “debt buyers.”

Can a collection agency or debt buyer report the debt to a credit reporting agency?

Yes.  However, like any creditor, the collection agency or debt buyer has a legal duty to report your debt accurately.  For more information on your right to a fair and accurate credit report, see Credit Reports & Credit Scores.

Know Your Rights!

Most debts can only be reported on your credit report for seven years, counting from the date of delinquency (usually a few months after your last payment).  The date of delinquency does not change, no matter how many times your debt is bought and sold.  The debt collector or debt buyer has a legal obligation to report the true date of delinquency to the credit reporting agencies.  Some debt collectors and debt buyers report the date they received the debt instead of the true date of delinquency.  This process is called “re-aging,” and it is illegal!  It will cause your debt to stay on your credit report longer than it should!  You have the right to dispute “re-aged” debt in your credit report.  For more information on disputing errors in your credit report, see Credit Reports & Credit Scores.

Will my creditor actually sue me?

It is hard to say.  Creditors frequently threaten lawsuits, but those threats are not always carried out.  Creditors are less likely to sue if:

  • You make voluntary payments, even if those payments are small
  • You dispute the debt and threaten to raise a reasonable defense
  • Your debt is less than $1000
  • The creditor does not have a history of suing people

On the other hand, not all creditors are rational, and some will sue even over small amounts of money.

Can my creditor sue after I have made a payment agreement?

Unless you have a specific agreement with the creditor providing that it will not do so, your creditor can sue you even if you have made a payment agreement and are current in your payments.  The agreement can be in writing, or it can be oral.  However, for your own protection, you should not make oral agreements with creditors unless you are recording your conversations.  (Recording your own telephone conversations is legal in New York state; you do not have to tell the creditor that you are recording the call.)

What should I do if the creditor sues?

Respond to the lawsuit!  It is never a good idea to ignore a creditor’s lawsuit.  For more information on responding to creditor lawsuits, call the NYC Financial Justice Hotline, at 212-925-4929, or click here to request assistance.

What is a statute of limitations?

A statute of limitations is a time limit for filing a lawsuit (how long after an event someone is allowed to sue you). Different kinds of cases have different statutes of limitations. Statutes of limitations also vary from state to state, so it is important to check the rules for your state.

What is the statute of limitations to file a debt collection lawsuit?

In New York, the statute of limitations for filing a debt collection lawsuit is between three and six years, counting from the date of default. The date of default is roughly 30 days after you last made a payment. As of April 7, 2022, New York has a three-year statute of limitations on many kinds of consumer debts, including credit card debts. For other kinds of consumer debts, a longer statute of limitations — up to six years — may apply. See discussion under “Defense 3: Statute of Limitations” for more info.

However, if a creditor obtains a judgment against you, the statute of limitations to collect on the judgment is 20 years.

Can a debt collector contact me about a debt that is past the statute of limitations?

Yes. It is legal for a debt collector to contact you about an old debt that is past the statute of limitations. As of April 7, 2022, if you make a payment on a credit card debt that is past the statute of limitations, you cannot restart the statute of limitations on that debt. However, this protection does NOT apply to all types of consumer debts. To be safe, NEVER make a payment if you want to assert the statute of limitations as a defense. See discussion under “Defense 3: Statute of Limitations” for more info.

Can a creditor sue me for a debt that is past the statute of limitations?

A creditor may sue you on a debt that is past the statute of limitations, but doing so may violate federal debt collection law if the creditor is a debt buyer – a company that buys old, defaulted debts. If you are sued on a debt that is past the statute of limitations, you should still answer the lawsuit and appear in court. If you assert the statute of limitations as a defense in your answer, the court should dismiss the case. If you fail to answer the lawsuit and don’t appear in court, the court will enter a judgment against you, and you will end up liable for the judgment amount, even though you could have gotten the case dismissed. Unless you can get the judgment canceled, or “vacated,” the creditor will then have 20 years to collect on the judgment.

Can I go to jail if I don’t pay my debts?

NO!  There are no “debtor’s prisons” in the United States.  Owing money is not a crime.

More Information

Your Rights Under the Fair Debt Collection Practices Act (FDCPA)

Disputing the Debt

Recognizing Debt Collection Abuse

Negotiating with Debt Collectors

What is Exempt from Debt Collection?

Helpful Links and Resources

Consumer Financial Protection Bureau: Ask CFPB / Debt Collection

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