Are You Dealing With New York Credit Card Debt?

Daniel Gershburg is a Bankruptcy Attorney. He does not handle credit card collection cases. If you are considering bankruptcy due to credit card debt, please contact Daniel Gershburg today at 212-390-8866.

Barely a day goes by when we don’t have a conversation like the following:

“Hi, the New York Civil Court entered a judgment against me, and now some collection agency is threatening to garnish my wages and freeze my bank account in Brooklyn….also, I was never served with any summons and complaint.”

It’s happening more and more in New York courts, and our past blogs have dealt with how and why. But here are some things you should know if you’re struggling with credit card debt.

How Long Does a Company Have to Collect Credit Card Debt?

In New York, credit card companies have up to six years to sue you for all types of debt. If the amount is especially small, they may not bother. However, what they may do instead is sell your charged-off account to a collection agency for pennies on the dollar, and these companies are a lot more ruthless. Next thing you know, you’ll be getting calls and letters demanding payment, and some collection agencies will stoop to calling your friends, family, and even your boss to embarrass you into paying.

Whether you’re dealing with an original creditor or a debt buyer, be aware that they may try to trick you into contacting them about an old credit card debt. One common (but illegal) tactic is to send you a notice that looks like it came from a New York civil court. The goal is to have you contact them because it restarts the statute of limitations.  

Let’s say your Citibank debt is five years and 11 months old.  Credit card issuers and other lenders only have up to six years under New York law to collect on this type of debt.  If you contact them on year five, month 11, day 28, do you know what happens? You RESTART the statute of limitations. Don’t do it!

What is a Default Judgment?

When you have high balances on your credit cards and your creditors are convinced that you can’t or won’t pay, they sometimes go after their money by getting a default credit card judgment against you. 

Default judgments occur when someone files a lawsuit against you and you don’t appear in court to defend or deny the claim. After the court enters the judgment, the creditor gives it to a New York City Marshal, and next thing you know, your wages are being garnished or your bank account is frozen.

Not all default judgments are above board. The creditor may deliberately provide the wrong address for service of the summons and complaint, or a private process server may falsely claim that you were served. Google ‘sewer service’ and you’ll see how common this is.

So what can you do? 

You have a couple of options. One is to go to court and vacate the default judgment, which takes time and costs money that you may not have. The other is to file for Chapter 7 bankruptcy and eliminate all the debt that is now wreaking havoc in your life.

How Chapter 7 Bankruptcy Helps With Credit Card Debt

Overwhelming credit card debt is one of the leading reasons why New Yorkers file for Chapter 7 bankruptcy. If your cards have a high-interest rate and you’ve exhausted all available credit, keeping up minimum payments can become impossible, especially if you’ve lost your job or experienced a financial setback.

Unlike your home or motor vehicle, this type of debt is not secured by any collateral, so in most cases, you can discharge your credit card balances in a Chapter 7 filing and start over financially. The only ‘catch’ is that you must surrender any nonexempt property to your trustee for liquidation and distribution among your creditors.

In New York, you can use federal or state exemptions to protect your property. Both options offer such a wide range of protection that most Chapter 7 bankruptcies are no-asset filings, meaning that there’s no nonexempt property to sell to pay creditors. You may be able to get the debt relief you need without losing any property at all.

Is Credit Card Debt Always Dischargeable?

There are some important exceptions to the dischargeability of credit card debt in New York. Any balances you incurred through misrepresentation or fraud will survive your bankruptcy, meaning that you will not receive a discharge from them. There are two circumstances where credit card purchases are treated as fraudulent:

You Bought Luxury Goods

If you use a credit card to buy more than $725 in luxury goods or services within 90 days of filing Chapter 7 bankruptcy, you may not receive a discharge from the debt. U.S. bankruptcy law defines ‘luxury’ as goods or reasons that are not reasonably necessary to support you and your family. Food and clothing are considered reasonable expenses while a day at the spa is not.

Your credit card provider doesn’t need to prove that you had no intention to pay for your luxury purchases: as long as they were made within the 90-day time frame, they only need to file an adversary proceeding, which is a challenge of the debt’s dischargeability. However, you will have the opportunity to deny that the charge was a luxury item, and a judge will make a ruling.

You Took Out a Cash Advance

If you take out cash advances on your credit card that total over $1,000 within 70 days of filing for Chapter 7 in New York, the amount is not dischargeable if:

  • You used the money for personal (consumer) purposes instead of business purposes and-
  • The total is over $1,000 for a single creditor. A $300 advance on your Mastercard and a $700 advance on your Visa are not the same.

It doesn’t matter what you bought with the money from the cash advance. The luxury item designation only applies to goods or services charged to a credit card.

How Do You Rebuild Your Credit After Bankruptcy?

If you file Chapter 7, your credit score will be affected in the beginning (yes, clients ask this all the time), but once you’re discharged, you can rebuild and enjoy good credit once more. Some of the ways you can achieve this goal include:

  • Budgeting carefully
  • Getting a card with a manageable credit limit and paying it in full each month (or at the very least, maintaining low credit utilization)
  • Taking out a small personal loan and paying it back quickly
  • Paying all bills on time
  • Making regular debt payments
  • Checking your credit report regularly for accuracy

Over time, your financial situation will improve, provided you stay on track. You’ll receive credit cards with a lower interest rate and get better terms at any financial institution you deal with. This is actually the purpose of the U.S. bankruptcy system: to give honest debtors a fresh start.

Do You Need to Speak to a New York Bankruptcy Lawyer?

Are you in a situation where your credit cards have the highest interest rate, your monthly payments are excessive, and late fees are making repayment impossible? For some people, credit counseling, debt management tools, or a debt consolidation loan can help, while others will benefit from a Chapter 7 bankruptcy.

At Gershburg Law, we’ve helped many New Yorkers overcome their credit card debt problems. If you’re dealing with embarrassing calls, wage garnishment, and other collection actions, Chapter 7 can help you deal with this outstanding credit card debt and put it all behind you. 

Daniel Gershburg is an experienced New York bankruptcy attorney serving clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island, and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large about bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates. Currently, he is working on his first book, which gives practical advice about improving credit after bankruptcy. To schedule an initial consultation and receive the legal advice you can trust, call 212-390-8866.