Stress Spending: By the Numbers

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7 Great Questions to Ask During Your Free Consultation

This isn’t a post about choosing the right bankruptcy lawyer.

But here in New York City, most bankruptcy firms do offer some manner of free consultation. It’s a chance to review your case. It’s also a chance for you and the lawyer to find out if you’ll be comfortable working together.

But if you don’t ask the right questions during your free consultation you may miss out on some opportunities.

Questions About Your Unique Situation

When you go to a free consultation make sure to come with all your financial paperwork in hand. This will give the lawyers the opportunity to really understand your financial situation and any bumps we may encounter on the road.

Have I done anything that would be a problem for my bankruptcy?

It’s remarkably easy to do things which could cause your bankruptcy case to have real problems. Even to do things which seem fraudulent.

It’s important to go into bankruptcy absolutely sure you haven’t made any transfers that could be considered fraudulent, and that you haven’t done anything which makes it seem you favor one creditor over another.

It’s not a bad idea to call this information to the attention of any lawyer you’re seriously thinking about hiring as well. Make sure we see anything that could be potentially dodgy.

How much of my property is exempt?

Exemptions matter in both forms of bankruptcy. In Chapter 7 this is the property you’ll keep. Everything else will be sold off to pay your debts.

In Chapter 13, non-exempt property can make your payment plan a lot more burdensome.

Exemptions also play a big role in the form of bankruptcy you choose.

What form of bankruptcy do I qualify for?

You should spend some time going through your income and budget so the lawyer can determine if you pass the means test. If you do, you’ll be eligible for Chapter 7, though it may not be the best choice.

You are eligible for Chapter 13 as long as you have a regular, reliable source of income.

So which do you choose?

It depends on your goals. If you’re trying to keep a car from being repossessed, a house from being foreclosed upon, or both, Chapter 13 may be your best option. But not always. If the car and the house are exempt then you can safely file Chapter 7.

See why you wanna ask some questions?

What should I avoid doing once I file for bankruptcy?

Just as you can do some things prior to filing which could create problems for your case, you can also do some things after you file that can create big trouble.

For example, did you know saying anything to a creditor that might be construed as threatening could get you accused of extortion, even if all you were “threatening” was a refusal to do business again in the future? You might not like it if a creditor challenges your bankruptcy, but they have the right to do so. And this is just one of the many ways you can blunder into hot water if you’re not careful.

Make sure you walk out of the consultation with the full “what not to do” list.

Questions About The Lawyer

As mentioned, your free consultation is a good time to find out if you and your lawyer work well together. So it pays to ask some good questions here as well.

How long have you been a bankruptcy lawyer?

Bankruptcy can throw a lot more curveballs than people believe. Sure, everyone has to start somewhere, but if you are dealing with a rookie lawyer you should at least make sure they’re reporting to someone more experienced.

How do you get paid, and what will paying you look like?

This is the last thing you should be anxious about, so make sure you get it all clear before you leave the office.

See also: How Do You Pay for Your New York Bankruptcy?

Who will be spending the most time on the case?

Some firms push the bulk of the work off onto paralegals, while supervising from afar. This isn’t the lawyer you want.

The lawyer you meet with should be the one working your case, period. It’s fine if they get assistance from paralegals, but it should be just that: assistance. Ideally, you’ll work with someone who gives you one-on-one time and shows you the way forward.

And if you happen to like what you hear? There’s no reason you shouldn’t move forward then and there.

Want to talk to me? Schedule your free consultation today to get started.

Priority? What Does It Mean for Bankruptcy in NYC?

Throughout the proceedings for bankruptcy in NYC, you’ll hear lawyers and trustees refer to priority claims and taxes. It is apparent from these conversations and occasionally debates, that the determination of priority versus non-priority is important for the court and creditors. In fact, the trustee taking your case could spend substantial time reviewing your finances to determine what priority claims you repay.

As this process unfolds, are wondering exactly what priority means for bankruptcy in NYC? Keep reading.

All Creditors Make Claims in an NYC Bankruptcy

Bankruptcy in NYC is driven by process and procedure. For example, the bankruptcy court strictly enforces timing requirements. The failure to meet deadlines can result in dismissal of your bankruptcy case. Another crucial process for bankruptcy in NYC is only repaying debts according to a Chapter 13 repayment plan or through liquidation of assets if filing under Chapter 7. Unapproved and unauthorized repayment of debts after filing for bankruptcy is illegal.

The bankruptcy trustee is appointed by the court to oversee and direct the repayment of creditors in a bankruptcy case. To be considered for repayment, a creditor must submit a claim. In the context of bankruptcy in NYC, a claim is any request for repayment.

Failure to file a claim means the creditor won’t receive any payment from the bankruptcy estate. There is only one exception. When there are no assets to liquidate in a Chapter 7 bankruptcy in NYC, and therefore no funds to distribute, creditors are not required to file a claim with the bankruptcy court.

As with all the other procedures outlined above, creditor claims must adhere to the rules of federal bankruptcy. For instance, all claims in Chapter 7 or Chapter 13 bankruptcy in NYC must be filed within 70 days of the bankruptcy petition. A claim must also have proof of a claim accompany the request for repayment. Proof of a claim should tell the bankruptcy trustee how much is owed to that creditor and whether the debt is secured or unsecured.

Claims Are Collected, the Trustee Determines Repayment

Based on the information provided in the proof of a claim, the bankruptcy trustee then determines how much money each creditor should receive. Of course, the trustee doesn’t make this decision at random or by chance. The creditors repaid through bankruptcy in NYC and how much is repaid is determined by priority.

The bankruptcy allocates payments to any and all priority claims first. These claims are repaid, often in full, before any non-priority claims are assessed and allocated funds from the bankruptcy estate. Some examples of priority claims include outstanding child and spousal support payments, income and other taxes owed to the federal government, taxes owed to the state or local government, and unpaid criminal fines.

In contrast, the bulk of outstanding obligations at issue in a bankruptcy in NYC are non-priority claims. Credit card debt, unpaid medical bills, student loans, and other personal loans are all types of non-priority claims. In most instances, these non-priority claims are also the debts discharged at the conclusion of Chapter 7 or Chapter 13 bankruptcy in NYC.

Paying the Cost of a Bankruptcy in NYC

The administrative costs of bankruptcy in NYC are also priority claims. The bankruptcy trustee is required to allocate funds in the bankruptcy estate to cover attorney fees, trustee fees, court costs, the costs of administering the bankruptcy estate, and other expenses of bankruptcy. In fact, these costs receive first priority for repayment in any bankruptcy.

Want to better understand priority claims and the order of repayment during an NYC bankruptcy? You can schedule a free initial consultation with our legal team at the Law Office of Michelle Labayen.

Our top NYC bankruptcy law firm offers a free initial consultation to any potential client. This initial consultation is cost-free and commitment-free. You don’t need to sign an engagement letter or hire our firm before coming into the office. No matter what, your initial consultation at the Law Office of Michelle Labayen is entirely confidential. So, if you have questions about priority or other procedures in bankruptcy, contact us at (212) 381-6083.

Where to Begin When Filing Chapter 7 Bankruptcy in New York?

You don’t simply wake up one morning and file for Chapter 7 bankruptcy – at least, you shouldn’t. First, there are explicit requirements in place by the federal bankruptcy laws that must be met before you are permitted to file under Chapter 7 of the Bankruptcy Act. Second, bankruptcy isn’t the best course of action for everyone, even when faced with substantial debts and outstanding obligations. You could be much better served through a different chapter of the Bankruptcy Act or utilizing an alternative to bankruptcy.

So, how should you prepare for Chapter 7 bankruptcy in New York? Our years representing people of all backgrounds and circumstances in the Chapter 7 bankruptcy process have garnered substantial information on when, how and what to prepare for filing. Here’s a list of our top tips.

#1: Understand Your Debts, Outstanding Payments, and Assets

The scope of your financial situation is crucial to Chapter 7 bankruptcy and it is the necessary first step in filing for bankruptcy in New York. You will need to provide an assessment of your financial circumstances to a New York bankruptcy attorney. After that, you will need documentation and information to take to credit counseling, and finally, it is this information that informs your bankruptcy petition.

#2: Go to Credit Counseling

There are several strict eligibility and prerequisite requirements to Chapter 7 bankruptcy. One requirement under the Bankruptcy Act that is often unknown or overlooked by non-lawyers is attending credit counseling. You must complete credit counseling within six months of filing for Chapter 7 bankruptcy.

You want to complete credit counseling as far in advance of your Chapter 7 bankruptcy filing as possible, while still meeting the six-month requirement. Why seek out credit counseling early in the process? It will require you to be more organized with your documentation, information, and payments. You will better understand some of the ramifications of bankruptcy, and you will know if there is a good alternative to Chapter 7 bankruptcy.

Keep in mind credit counseling is free for anyone that is preparing for bankruptcy and any advice provided by the credit counselors is optional. You can implement or ignore the suggestions made by your counselor. As it is also confidential, there are few downsides to exploring this process.

#3: Hire a Lawyer with Bankruptcy Experience

Bankruptcy is subject to a specific set of laws. These laws aren’t fully understood by just any lawyer, and you deserve top-notch legal representation during this process. Given the specificity of Chapter 7 bankruptcy, you want to hire a lawyer who has prior experience with bankruptcy representation and advice. More specifically you want to look for a lawyer that has extensive prior experience with Chapter 7 bankruptcy cases.

At the Law Offices of Michelle Labayen, we offer free initial consultations to anyone considering Chapter 7 bankruptcy in New York.

#4: Gather Your Documentation and Understand the Means Test

Another requirement of Chapter 7 bankruptcy is the means test. To be eligible for Chapter 7 bankruptcy, an individual must make less than the median income for the state where he or she intends to file. In order to assess whether you qualify for Chapter 7 bankruptcy under the means test, your New York bankruptcy lawyer will need information about your wages, child support, alimony, and any other income. As all of this information needs to be collected, it is a fantastic time to collect other documentation necessary for filing for bankruptcy.

#5: Prepare Your Chapter 7 Bankruptcy Forms

The core of a Chapter 7 bankruptcy is the paperwork required for filing. There is an entire packet of paperwork that must be entirely and correctly completed before you file for Chapter 7 bankruptcy. Luckily, the majority of provided information you will need to complete these forms is collected and reviewed during the earlier stages of the preparation process. Despite the thorough planning and prep, your New York bankruptcy lawyer should review these forms before you submit the paperwork to the federal bankruptcy court.

Once you’ve finalized your Chapter 7 bankruptcy paperwork, you are ready to file a bankruptcy petition with the court.

Considering Chapter 7 Bankruptcy in New York?

No matter where you are in the preparation or process of Chapter 7 bankruptcy in New York, you can hire a bankruptcy lawyer for your case. At the Law Offices of Michelle Labayen, we represent clients through the entirety of the Chapter 7 process, including all preparation, review, and filing of your bankruptcy petition.

Our legal team can handle your bankruptcy case through to discharge of your debts and conclusion of your Chapter 7 bankruptcy. If you are ready to learn more about our legal services or the laws governing bankruptcy, contact the Law Offices of Michelle Labayen at (212) 381-6083.

The Sears Bankruptcy: The demise of an iconic American brand

It is no longer news that one of America’s most iconic retail brands, a trailblazer which bestrode America’s retail space for several decades is locked in a desperate struggle for its very existence.

Sears, Roebuck and Company (“Sears”) the Illinois – based retail giant founded 126 years ago in 1892, filed for Chapter 11 bankruptcy in early October 2018 before the US Bankruptcy Court for the Southern District of New York in White Plains, New York.

America’s story will be incomplete if Sears is not mentioned as Sears had over several decades, grown to become a permanent fixture of everyday American life.

Founders; Richard Warren Sears and Alvah Curtis Roebuck had from its earliest days envisioned Sears as a game changer as well as a trailblazer in the US retail industry. This intention was first demonstrated when Sears launched its mail order catalogue which dramatically transformed access to merchandise and goods for Americans who resided in remote rural communities; who before this time had had to rely on local general stores which tended to have a narrow and limited supply of merchandise offered at considerably higher prices. Sears pioneered the strategy that has been replicated across the world by retail giants on virtually every continent, the strategy which would ironically be used several decades later by competitors to topple it from its position at the top of the retail hierarchy – selling everything to everyone.

With a disruptive streak of innovation, Sears’ Mail Order Catalogue grew from 322 pages in 1894 to 532 pages in 1895 comprising an ever expanding inventory of merchandise ranging from stoves, dolls, sewing machines, jewelry and from childrens’ toys to bicycles and house building kits. Sears was the Amazon of its time and the small town general stores simply could not match the convenience and diversity of merchandise that was offered by Sears to Americans residing in previously underserved communities.

Sears blazed yet another trail when in 1906 its highly successful IPO (Initial Public Offering) became the first for an American retailer and by the following year, 1907 the retail behemoth had achieved annual sales in the neighborhood of $50million ($1.3billion today) and would continue its upward trajectory for several decades thereafter, eventually achieving an all-time high of $1.5billion in 2006.

In 1925, Sears opened its first store in Chicago and nearly half a century later, after several decades of unchallenged dominance in the retail sector, Sears opened what was then the world’s tallest building; Sears Tower (now Willis Tower) in 1973.

Until October, 1989 when it was surpassed by Walmart, Sears had the largest domestic revenue of any US retailer but from around 2010, the company experienced a sharp decline in profitability as its physical store count spiraled downwards from 3500 in 2010 to 695 in 2017 and in the months leading up to its October 2018 Chapter 11 Bankruptcy filing, the Company has continued to shut down an increasing number of its stores in an attempt to stop hemorrhaging cash.

A variety of factors contributed to the slow and painful death spiral experienced by Sears. For example, by the 1990s, Walmart had made massive and irreversible inroads into the retail space where Sears had once dominated. Walmart lured away Sears loyalists by offering a dizzying and diverse array of merchandise at prices that Sears could not hope to match.

Again, Lulled into a false sense of security and dominance, which invariably came from being America’s number 1 retailer for over seven decades, Sears failed to recognize and take proactive measures in the face of seismic shifts that were starting to occur in the retail industry as shoppers increasingly turned to Amazon and other online retailers for their shopping needs. Simply put, Sears flouted one of the major rules of the retail industry – a rule which had decades earlier helped it climb to the top of the retail industry; it failed to continue innovating even in the face of disruptive new technologies such as online shopping and the menace of e-commerce giants such as Amazon.

By the time Sears began to take steps to regain its deeply eroded market share, it was too late.

In the years leading up to its bankruptcy filing, the company has had to sell off several valuable brands in addition to shuttering several physical stores all in a bid to return to profitability. These efforts have been largely futile.

Additionally, the Company’s vendors and suppliers had long seen the handwriting on the wall and had gradually decreased the number of products that they were willing to supply on credit. This made it virtually impossible for the company to compete meaningfully with other retail giants who in the meantime continues to eat relentlessly into its market share.

Sears recent bankruptcy filing is from all indications, a last ditch attempt to avoid liquidation (as was the case with a few other US retail giants such as Toys ‘R’ US, Sport Authority and Payless Shoes) and to enable it reorganize its business and hopefully, return to some level of profitability. It is however unclear how it hopes to tackle the stiff challenge posed by e-commerce giants.

As part of its Bankruptcy restructuring, Sears CEO, Edward S. Lampert will step down but will remain as Chairman of the Company.

Mr. Lampert who has been at the helm of affairs for the past decade and who oversaw the selloff of many of Sears’ valuable brands is a successful hedge fund manager and his Hedge Fund, ESL Investments is said to be involved in negotiations towards extending a much needed $300 million loan to Sears.

Another proposed measure under the Company’s Chapter 11 Bankruptcy filing would be the closing of a further 142 stores. It has been revealed that Mr. Lampert’s strategy is to whittle down Sears physical stores to just 400 profitable outlets in a bid to return the company to profitability. It is as yet unclear how far this will go in pulling the retail giant back from the brink of liquidation. However, industry analysts do not hold out much hope that a Chapter 11 Bankruptcy filing will return Sears to any sort of relevance in the retail industry. It is very likely that millions of Americans who grew up shopping and doing much more at Sears will have to bid goodbye to an iconic American brand that had dominated the retail industry for many decades.

Sears bankruptcy proceedings will be overseen by Judge Robert Drain with Sears being represented by the Law Firm of Weil, Gotshal & Manges.


Fraud, Bankruptcy Courts and the Rooker-Feldman/Res Judicata doctrines

A very interesting judgment was recently handed down by the United States Bankruptcy Court for the Southern district of New York. This judgment examined and pronounced upon the effects (in Federal Court) of fraud on the application of Res Judicata/Rooker-Feldman Doctrine.

Brief Background

In this case, the debtor Frank Petrelli approached the Court to challenge as well as determine JP Morgan Chase’s (“Chase”) status as a secured creditor.

Mr. Petrelli’s Counsel argued that Chase’s proof of claim was not a copy of an original note and that it differed from a version which was produced in State Court by Chase at a foreclosure action which preceded the bankruptcy case. Mr. Petrelli’s Counsel also sought for the Court to discountenance Chase’s Affidavit of lost note by declaring that it could not be relied upon to establish ownership of the note and mortgage.

Mr. Petrelli’s Counsel carefully pointed out the material differences between the note produced in State Court during the foreclosure proceedings and the copy produced during subsequent bankruptcy proceedings in Federal Court.

Flowing from the above; several reliefs including the following were sought by Counsel on behalf of Mr. Petrelli;

  • Expunging and striking out from the Court’s records of Chase’s first mortgage claim against Mr. Petrelli’s home in Montgomery, New York.
  • Voiding of any lien claims over Mr. Petrelli’s home by Chase.
  • Alternatively, a reduction of mortgage arrears to the minimum allowed by law.
  • Awarding of actual, statutory as well as punitive damages against Chase by the Court.
  • Reimbursement for all legal and attorney fees as well as all other related expenses incurred by Mr. Petrelli in the prosecution of this suit.

An interesting twist to this intriguing case was that Chase chose to ignore the serious allegations that had been leveled against it – that it was attempting to use two different notes to prove its Mortgage debt and therefore committing fraud. Rather than address these serious allegations, Chase filed a motion to dismiss the suit, arguing (relying on the Rooker-Feldman and Res Judicata doctrines) that the Court must (emphasis ours) abstain from hearing these allegations as they had been decided upon in the State Court (in the earlier foreclosure Proceedings) and that if the Court were to proceed with hearing the allegations, it would amount to sitting on appeal over a decision handed down by the State Court – a direct violation of the Rooker – Feldman and Res Judicata doctrines. Chase also alleged that the debtor, Mr. Petrelli was deploying stall tactics to delay the foreclosure sale.

Counsel for Mr. Petrelli opposed Chase’s motion to dismiss arguing that from several indications, there was clear evidence that Chase was attempting to commit fraud.

In delivering a decision (ultimately in favor of Mr. Petrelli) on the motion to dismiss, the Court made clarifications on several issues such as:

  • In order to defeat a motion to dismiss (as filed by Chase); a Complaint (as filed by Mr. Petrelli) MUST contain sufficient factual matter which must be accepted as true. Merely pleading or alleging that Chase had committed fraud would not suffice, Mr. Petrelli was expected to provide sufficient evidence of the alleged fraud – in this case, Chase’s attempt to pass off two different documents as evidence of its mortgage claim over Mr. Petrelli’s home. The Court drew on its judicial experience as well as common sense in determining what could be regarded as sufficient factual evidence. The Court took cognizance of the fact that it was required to look into the factual content of the Plaintiff’s (Mr. Petrelli in this instance) complaint over and above every other consideration.

Following the decision in Sira v. Morton, 380 F.3d 57 (2d Cir. 2004), the Court declared that;

“a complaint is deemed to include any written instrument attached to it s an exhibit, material incorporated in it by reference and all other documents which though not incorporated into the complaint by reference, are integral to the complaint”

  • The Res Judicata and Rooker – Feldman doctrines do not and can never apply to the facts (fraud) as alleged by Mr. Petrelli especially as the allegations of fraud against Chase by Mr. Petrelli arise largely due to the fact that the proof of claim which was filed by chase did not exist (and could not have been decided upon) at the earlier foreclosure proceedings in State Court and could therefore not be deemed as falling under the Res Judicata and Rooker – Feldman doctrines.

Additionally, the State Court (foreclosure proceedings) could NEVER have ruled on the validity or otherwise of a Proof of Claim as that lay within the exclusive jurisdiction of the Bankruptcy Court by virtue of being a purely bankruptcy matter. This sound reasoning is backed up by Judicial Precedent (earlier binding decisions) as laid down in Kelleran v. Andrijevic, 825 F.2d 692,698 as well as Re Knapper, 407 F.3d 573,583 in these cases the principles that;

“the Bankruptcy Court in the allowance or rejection and ordering of claims shall not be bound by any broad or rigid rules of Res Judicata”


“A state Court judgment does not have res judicata effect because the Bankruptcy Judge is the only authority that can decide if a claim is allowable”

Were laid down and were correctly followed by the Court in Mr. Petrelli’s case against Chase.

The Court also followed the well established rule that regardless of the Res Judicata and Rooker – Feldman doctrines,  State Court judgment which is entered in a case that falls within the Federal Court’s exclusive jurisdiction (e.g. Bankruptcy) is subject to “attack” (i.e. review) in the Federal Courts.

  • Regardless of the Rooker – Feldman doctrine which prohibits Federal Courts from sitting on appeal over judgments emanating from a State Court, allegations of fraud are deemed as operating as exceptions to the doctrine as the applicability of the doctrine is based not on the similarity between a party’s State Court and Federal Court claims, but rather on the causal relationship between the State Court judgment and the injury of which the party complains in Federal Court.

Several previous judgments also support the principle that regardless of the doctrine of Res Judicata, procurement of a judgment by fraudulent means will not preclude a Federal Court from jurisdiction over a {New York} State Court’s judgment a few of such cases are:

Kelleran v. Andrijevic, 825 F.2d 692,694 (2d Cir. 1987); Re Slater, 200 B.R 491,495 (EDNY 1996); County of Suffolk v. Long Island Lighting Co., 710 F.Supp. 1387, 1393 (EDNY 1989).

The above cases are also indicative of the fact that New York State Law permits attacks on State Court Judgments (in Federal Court) which are obtained by extrinsic (as opposed to intrinsic) fraud.


The Court denied Chase’s motion to dismiss on the grounds of the foregoing while additionally granting Mr. Petrelli permission to amend his complaint to include a breach of contract.


woman holding smartphone

How to Deal with Debt Collectors

If you’ve ever gotten a phone call from a collection agency — or, if we’re being honest, several phone calls, since there’s never just one — you know how scary the experience can be. Not only do you owe a potentially large sum of money, but your credit report may also be in shambles. It can be hard to maintain your calm in the face of that kind of stress!

woman holding smartphone

But once you learn a little bit about how debt collection works and what’s motivating this company to endlessly hassle you, the whole thing gets less frightening and much easier to deal with. Here are our best strategies for dealing with debt collectors, and what you need to know to avoid getting taken for a ride.


  • 1 What happens when an account goes to collections?
  • 2 What to Do When a Debt Collector Calls
  • 3 Collection Call Scripts and Responses
  • 4 Know Your Rights: Debt Verification and the Fair Debt Collection Practices Act
    • 4.1 Fair Debt Collection
  • 5 Can a Collection Agency Garnish Your Wages?
    • 5.1 Debts Eligible for Wage Garnishment
  • 6 Removing a Collection Account From Your Credit Report
    • 6.1 Disputing with the Original Creditor
  • 7 Improving Your Credit Score and Maintaining Good Credit for the Future

What happens when an account goes to collections?

Collection agencies want your money, of course, but they’re legally required to verify the debt they’re seeking. And although their representatives are trained to sound intimidating, the truth is, they don’t have a whole lot of power over you. The item’s already on your credit report, so the ball’s in your court. (Occasionally, they’ll offer to have it removed for you, but may charge you an additional fee for this “service.” You can just as easily file a dispute directly with the credit bureaus after you deal with the collection agency itself.)

What’s more, by the time your account has gone to collections — usually after 60 to 180 days of non-payment — the original lender has basically given up on ever receiving your debt. That company sold your debt, for a fraction of what it’s worth, to the collection agency, which in turn makes its money by scaring you into coughing up the dough.

In many cases, the collection agency doesn’t actually have all the information it needs to verify you ever owed the debt in the first place, and if they can’t produce the necessary documentation, they’re legally required to leave you alone.

This means all you need to do is prepare yourself to deal with collection agencies ahead of time, and know exactly what to say and do when they call.

What to Do When a Debt Collector Calls

If you’re receiving phone calls from a debt collector, you know how tireless and discouraging they can be. Debt collector phone reps use carefully-designed verbiage and scripts which are meant to make you feel guilty and afraid.

But don’t forget: you’re the one in charge. The agency is trying to get your hard-earned money, and all they did was buy your debt from the original lender for cents on the dollar. So stay calm, buck up, and divulge as little information as possible. Instead, demand that they give information to you. And never, ever agree to a payment plan or make a payment on the spot without asking for a debt verification letter in writing!

Collection Call Scripts and Responses

When a collector calls you, it’s your chance to ascertain the information you need to figure out whether or not you actually do owe the debt — and the ammo you’ll need to file a dispute if it turns out to be illegitimate.

Here are the details you should get from the collections representative while you have them on the phone:

  • The exact amount of the debt
  • What type of debt it is
  • When and where it originated
  • The full name of the collection agency (and the individual representative)
  • Where and how they got your information

If you’re receiving multiple calls, ask for — and mark down — this information every single time. The rep may try to pressure you into making a payment or agreeing to a payment plan; do not allow them to intimidate you. They are legally required to verify the debt, and you don’t have to pay a single cent or divulge any personal details until they’ve provided a debt verification letter.

Also, remember that it’s okay to hang up on the representative if the conversation is getting heated or you simply don’t want to talk to them anymore. You can also explain that it’s not a good time to talk and request a phone number to call back when you’re ready.

Know Your Rights: Debt Verification and the Fair Debt Collection Practices Act

A collection agency must be able to provide written verification of your debt in order to legally pursue payment. (And remember: the agency may not have the information they need to do so, even if the debt is legitimate, since the original lender is no longer invested in your repayment.)

So, either on the phone or by mail, request a written debt verification letter from the agency before agreeing to any sort of repayment strategy. You can also request that all further communications take place via mail only, so as to avoid those frustrating phone calls.

Fair Debt Collection

Thanks to the Fair Debt Collection Practices Act, collectors are barred from using “unfair” or “unconscionable” actions to collect, or attempt to collect, any debt. Their communications with you are also limited by guidelines laid out in this law, as well as requirements about debt verification.

Here are just a few of the rights you have when dealing with debt collectors:

  • Collectors can’t call you before 8 a.m. or after 9 p.m. in your time zone, though they may send text messages or emails during that time.
  • Debt collectors must honor written requests to cease contact, or to shift contact to certain avenues (i.e., no phone calls at work or written communications only).
  • Debt collectors can’t make threats against you, either of physical violence, arrest, repossession of your property, or lawsuits. Neither are they allowed to verbally abuse you or use foul language or insults in their communications.

Collection agencies are also legally required to identify themselves to you plainly, and if the person on the other end of the line puts up any sort of resistance to your informational requests, you could be dealing with a scam artist. Always protect yourself by asking for communications and debt verifications in writing to avoid giving a con artist a payday.

Can a Collection Agency Garnish Your Wages?

Even if you’re feeling confident about your communications with the collection agency, you may be wondering if they’re allowed to garnish your wages, especially if they’re making threats to that effect over the phone.

While some states do allow debt collectors to garnish wages, it isn’t the norm — and only certain types of debts are eligible for wage garnishment. Either way, the creditor would have to obtain a judgment against you in order to pursue wage garnishment, which would require a valid court order.

Debts Eligible for Wage Garnishment

Here are the types of debts that are eligible for wage garnishment:

  • Child support and alimony are the most common types, and most states allow wages to be garnished for these purposes. Depending on your specific circumstances, up to 60% of your disposable earnings may be garnished for child support payments.
  • If you owe back taxes, federal, state, and local governments can garnish your wages, and they don’t need a court order to do so. Your deductions and dependents will determine what percentage of your income can be garnished.
  • Federal student loan debt is subject to wage garnishment, but it’s limited to 15% of your disposable income.

In the majority of cases, a collection agency must file a lawsuit against you in order to start garnishing your wages, and the legal process takes time and effort. In other words, don’t let a debt collector scare you into making immediate with threats of wage garnishment — because they’re most likely bluffing.

Removing a Collection Account From Your Credit Report

Obviously, in an ideal scenario, you won’t have to worry about a collection account showing up on your credit report. But if you’re receiving calls from collection agencies, chances are it’s already there. It’ll stay for the standard seven years if you do nothing.

If the collection account is truly illegitimate, you can open a dispute directly with the reporting credit bureau, which will run an investigation on their end. If they determine the account is, in fact, fraudulent, they’ll remove it from your report immediately. If the credit agency is unable to provide a debt validation letter, this may help your case.

Disputing with the Original Creditor

You can also file a dispute with the original creditor, which gives you the opportunity to bypass dealing with the collection agency. In order for this tactic to work, you must also dispute the account with the credit bureaus themselves.

Finally, it is possible to negotiate with the collection agency itself, such as agreeing to pay a lump sum (which is significantly lower than the requested total) in order for them to write off the debt. However, if possible, it’s preferable to find ways around dealing with the collection agency directly.

Improving Your Credit Score and Maintaining Good Credit for the Future

After dealing with a collection agency debacle, your credit score may have taken a hit. But if you’ve taken the steps necessary to negotiate with the agency and resolve the issue, you can look forward to rebuilding a positive credit history.

With time and persistence, positive credit activity (such as paying your accounts in full and on time or reducing your overall debt burden) can help bring a tarnished score back up into the “good” or even “excellent” categories. Credit repair companies can help turn this lengthy process into a shorter, easier journey. Here are a few of the best on the market to choose from.

No matter how you resolve your current credit woes, however, be sure to monitor your credit going forward, by taking advantage of your free annual credit check or using a credit-monitoring service through your credit card issuer or bank. The best way to deal with collection agencies is to avoid them altogether, and the earlier you know about a negative or delinquent item on your history, the better your chances of keeping it from going to collections.