| Debt Management for People
with HIV/AIDS
A guide to help people living with HIV/AIDS
answer questions about debtor/creditor problems
Table of Contents
Acknowledgements
Debt Management for People with HIV/AIDS is the product of many minds
and many hands. The Legal Services and Advocacy Department would like to
express its gratitude to the staff members, volunteer attorneys and other
professionals whose assistance and advice over the years have helped us
to develop strategies and compile information for the benefit of our
clients with HIV.
The brochure is modeled after a similar publication by the AIDS Legal
Referral Panel of San Francisco, and we would like to thank the late Clint
Hockenberry for his permission to benefit from its efforts.
Composition of the text is chiefly to be attributed to Adrienne Mirviss,
Tina Schaper, Bill Zwart, Gloria Pelaez, Jeremy Berman, Michael Fannon and
Randye Retkin.
Finally the Department wishes particularly to thank the Bills Foundation
for underwriting a significant portion of this project.
Introduction
This brochure is designed to assist you to understand your rights when facing
creditors and to help you handle your debts. Your debts may include credit cards,
credit lines, loans, mortgages, medical expenses, guarantees, outstanding taxes,
child support, or alimony obligations. You may have difficulty handling these debts
due to changes in employment, loss or reduction in income or changes in your health.
If you are facing financial difficulties it is important not to ignore your
creditors. When dealing with your debts you do have options. There are three
basic courses of action that you can take:
1. Negotiating a payment schedule with your creditors
2. Claiming that you are judgment-proof
3. Filing bankruptcy
The answers to the frequently asked questions which are provided in this brochure
may help you choose from among these three options. At the outset, however, the basic
considerations are:
1. Negotiating a payment schedule may be appropriate for you if:
- you own property and/or are receiving income which is not exempt from creditors
(property and income exempt from creditors is discussed on page 11: "What Property
is Exempt From a Judgment Creditor in New York") and
- you will be able, eventually, to pay off your debts in full and still have income
and/or property left over.
2. Claiming that you are judgment-proof may be appropriate for you if:
- all of your income is exempt from creditors;
- you do not think you will ever be able to pay off your debts in full; and
- you do not plan to return to work.
3. Filing bankruptcy may be appropriate for you if:
- you own property and/or are receiving income which is not exempt from creditors; but
- you do not think you will ever be able to pay off your debts in full; or
- you are presently disabled, but plan to return to work.
Failing to take any step at all can, and usually will, result in your creditors seeking
legal remedies to collect any outstanding debts you may have. This is true whether the debt
involves a credit card company or an outstanding medical bill. In short, your creditors will
sue you and most likely get a judgment against you.
Taking charge of your debts and, most importantly, understanding your legal rights can
help you reduce the stress and alleviate the tension that can often be caused by creditors
and collection agencies.
What happens if
I can't make a payment?
If you are having difficulties paying your debts, you should know the consequences of
paying late or not paying at all, and then you can decide which bills to pay now, which
to postpone and which to ignore. If you fail to pay a debt, it will go through a "collection
process" in which your creditors will try to collect what is owed them. An unpaid debt
usually goes through a three step process involving the creditor (to whom you owe the
original debt), a collection agency or debt collector (a third party who collects debts
owed to others) and an attorney (the only person who may take legal action). The speed
and duration of the collection process may depend upon the specific creditor and any
action you have taken in handling your debts. Some loan agreements for items such as a
car or house have a disability insurance policy attached which pays the entire debt in
case you become disabled. Even if there is no disability coverage, the collection process
takes time to work, and you can't lose any property immediately. Failure to pay a debt
(except in the case of child support or alimony or in rare cases of fraudulently evading
payment of taxes) will never result in imprisonment. How you wish to handle your unpaid
debts depends upon which of the three basic courses of action you choose.
What happens if I generally can make my
payments but must pay late for a period of time?
If you are behind in your bills but think you will earn, inherit or otherwise come into
some money, and will be able to pay your bills eventually, then you should follow the
first of the basic courses of action: negotiating a payment schedule with your creditors.
First, call your creditors and tell them you are unable to pay for several more months. Most
creditors want to be paid and avoid collection efforts. With their cooperation, you can work
out a payment plan which allows you to pay off your debts over an extended period of time,
often at a reduced or even a zero interest rate. If you do successfully negotiate a payout
schedule that is realistically based on your income and expenses, get a written confirmation
letter from the creditor stating the terms of your agreement, including the amount you agree
to pay, the date each payment is due, and the amount of interest. Sometimes creditors are
reluctant to agree to a payment schedule if they learn that you are receiving exempt income,
such as public assistance or social security benefits. You may, however, be able to negotiate
a payment plan with them if you tell them you are willing to pay.
If you are working and earning steady income, you may want to contact the Budget and Credit
Counseling Service for assistance in negotiating a payment schedule at 212/675-5070.
What happens if I do not pay anything?
Before you decide which debts to pay and which to ignore, you need to know the consequence
of not paying. Then you may be better able to decide among the three basic courses of action:
negotiating a payment schedule, claiming that you are judgment-proof or filing bankruptcy.
One obvious consequence of not paying a debt is, of course, a lawsuit. A creditor can
choose to sue you if you don't pay a bill. Even if a creditor does sue you, you will not be
deprived of any property right away because a lawsuit takes time to go through the court system.
You will first be informed that a creditor is suing you by a legal notice called a "summons and
complaint" or a "verified complaint" stating that the creditor is suing you for a specified
amount. You are entitled to respond to the summons by filing an "Answer." If you dispute the
amount owed, you can deny the creditor's claim and ask for verification of the debt. If you
think that you will be able to pay the debt eventually, you may want to negotiate a payment
schedule with the creditor to avoid seizure of your non-exempt assets. You can also decide
not to respond to the summons. Failure to respond or your inability to pay will likely result
in the creditor winning the case against you and the court issuing a money judgment against
you which is an order to pay the creditor what he demanded, plus attorney's fees, court fees,
and interest. A judgment is good for 20 years and interest on the debt continues to accrue.
A creditor can collect a money judgment by taking your property but certain kinds of your property
cannot be used to satisfy a money judgment (see below for a list of property that can be claimed
as exempt). There are four methods creditors use to collect money or property to satisfy the money
judgment after the lawsuit:
1. Wage Garnishment: If you are working and the creditor has a money judgment, the creditor
can take up to 10 percent of your wages before taxes from your paycheck until the judgment
is satisfied. The remaining 90 percent is exempt from this and all other creditors.
2. Bank Account Attachment: If you have a bank account, and the creditor has a money judgment,
the creditor can "freeze" your bank account and take the money from your account. This freeze
lasts for either one year or until the money judgment is satisfied. Certain funds, such as money
from public assistance, social security and payments from disability insurance are exempt from
attachment and can be recovered by you if they are taken from an account. If your only income
is from exempt sources, it is very important to keep accurate records of all of the funds in
your bank account in case creditors try to seize these funds. Keeping good records and
verification of the source of the funds in your bank account will help you get the release of
any exempt funds in your bank account. Copies of social security benefits award letters, copies
of disability checks and copies of public assistance budgets can serve as verification of the
source of your income. Having a joint account with a lover, friend or relative does not prevent
creditors from seizing the funds in these accounts. Creditors are unable to distinguish between
"your" funds and those belonging to the other account holder. If you are threatened with a
lawsuit or have been sued, it is probably best not to retain a joint bank account.
3. Real Property Liens: If a creditor has a money judgment, he can file a lien against
your real property. "Real property" means real estate including your house, a condominium or
any other land that you own. When a creditor places a lien on your real property, your
creditor must get paid when you sell or refinance it or when you die and it changes ownership
as a part of your estate. If you fail to pay real property taxes or child or spouse support,
a lien may be placed on your real property without the issuance of a money judgment.
4. Personal Property: "Personal Property" means all property other than real property.
If a creditor obtains a money judgment, and you own valuable personal property in excess
of your exempt property (see below), your creditor can require the Marshal to seize the
excess valuable property. Although this is legally possible, it rarely occurs because it
is difficult for creditors to determine the extent of your personal property.
Non-payment of certain other financial obligations such as rent, secured debts, utility
or insurance bills, child support, alimony and taxes can result in particular situations
of which you should be aware:
Rent: If you fail to pay your rent, your landlord can sue you in what is called a
non-payment proceeding in Civil Court. If the landlord wins, the court will order that
he have possession of your apartment by awarding the landlord what is called a judgment
of possession and warrant of eviction. A Marshal will serve you with a 72-hour notice
to vacate your apartment and, after 72 hours have passed, may proceed to evict you. If
you are disabled by HIV/AIDS and have a limited income, you may be entitled to public
assistance or rental supplements. You should contact the HIV/AIDS Services Administration
(HASA, formerly DAS). Further, if you are disabled at the time you receive the Marshal's
72-hour notice, you should contact an attorney immediately, and tell the Marshal to
contact Protective Services for Adults ("PSA"). PSA can stop the eviction and help you
apply for public assistance. PSA's telephone number is: 212/630-1853.
Secured Debts: A debt is considered to be secured when you have signed a security
agreement in connection with the purchase of certain property with credit by which you
pledge the property to your creditor, giving him rights in that property until the debt
is paid. Property purchased with a secured debt typically includes a house or a car.
Failure to make promised payments for such items may have consequences that differ
according to the type of property involved. For example:
[a] If you fall behind in your mortgage or home loan payment, the creditor can start
a foreclosure proceeding. If the creditor wins the foreclosure proceeding you will be
evicted from your home and your home will be sold. If your home sells for less than the
debt, the lender can sue you for the difference. If your home sells for more than the
debt, you are entitled to the excess.
[b] If you miss one car or truck payment, the creditor can repossess the vehicle. It
is unlikely, however, that a creditor will take your car unless you miss a few payments
and are uncooperative. If you need extra time, call the creditor in advance. If you decide
to give up your car, call the creditor and let the car be taken away. The creditor will
sell your car to recover the money you owe. If the sale of the repossessed car does not
cover what you owe, the creditor may sue you for the balance. If it sells for more, you
are entitled to any excess but many times when the creditor sells the vehicle, he will
not seek a price greater than the amount owed. So, it may be better if you can sell the
vehicle yourself so that you can pay the creditor what you owe and retain any excess
for yourself.
[c] If you have other property such as a sofa or a stereo that you pledged as security
against making payments, the creditor can repossess it after obtaining a court order. To
avoid a lawsuit, offer to give the sofa or the stereo back to the creditor. However, if
the creditor sells the item and the sale of the item does not cover what you owe, the
creditor may sue you for the balance.
Utilities, telephone, insurance, etc.: Missing payments for utilities, telephone
or insurance leads to the loss of the service or coverage. A creditor can also sue you
for any unpaid bill for past service or coverage. If you are having difficulty paying
your utility bill and you are on a limited, fixed income, you may be entitled to
financial assistance or reduced payments directly through the HEAP program sponsored
by the gas or electric company. The telephone company may also provide assistance for
those in financial need through their LIFELINE program. LIFELINE's telephone number
is: 1-800-555-5000.
Child Support and alimony: As a general rule, failure to pay a debt will never
result in imprisonment. However, if you willfully miss court-ordered child support
or alimony that a judge feels you can pay, you could eventually end up in jail. If
you are unable to pay child support or alimony, don't just ignore the situation.
Ask the judge to modify the amount. To do this you need to file a motion requesting
a modification of your payments. Alternatively you can obtain a written agreement
with your ex-spouse and then file it with the court.
Taxes: If you are behind in your taxes, the IRS and the State of New York will
attempt to collect the debt in the same way that a normal creditor would but the tax
authorities do not need to go to court for a judgment before they can garnish your
wages, attach your bank account, etc. The tax authorities are not able to take most
of your exempt property (see "What property is exempt from a judgment creditor in
New York," below). If you are unable to pay your federal income taxes, you can apply
for a economic hardship deferment by showing that your income does not meet your
current living expenses and that it would be an undue burden to pay your taxes. If you
qualify, the hardship deferment can postpone payment for three years, although interest
and penalties continue to add up. You must continue to file yearly income taxes even
if you receive this hardship deferment.
Special note about your tax refund: Missing child support, income tax or student
loan payments could lead to the loss of your Federal or State income tax refund.
Do I have to pay an old debt?
Whether you must pay an old debt depends on how old the debt is and the type of
communication you have had with the creditor. A law called the "statute of
limitations" limits the length of time that a creditor can sue you to collect a
debt. In New York the limit is six years from the time you made your last payment
on a written debt. On installment debts like student loans, the statute of
limitations applies to each installment as it is due.
Even if the statute of limitations has passed, a creditor may still be able
to collect if you "reinstated" the debt. Reinstating a debt means that you have
acknowledged the debt by either sending a payment or contacting the creditor in
writing. A creditor then has another six years to sue you for any debt that you
have reinstated.
What does it mean to be "judgment proof"?
One of your most powerful weapons against your creditors is explaining to them
that you are "judgment proof." Being judgment proof simply means that you do not
have any income or assets which can be used to pay your creditors. Any property
you have is "exempt" from attachment and cannot be taken by your creditors to
pay your debts. Even if your creditors have asked a Marshal to take your property
to satisfy a court judgment against you, your exempt property cannot be taken. To
be judgment proof, you do not need to do anything. The expression "judgment proof"
simply describes the condition of a person who has nothing a creditor can take.
What property is exempt from a judgment
creditor in New York?
Certain of your income, personal and real property cannot be taken from you
even by a creditor who has sued you and obtained a money judgment. Below is a
list of the income and property you can claim as exempt from attachment or
collection by a judgment creditor if you live in New York State.
INCOME:
- Ninety percent of salary and wages
- Ninety percent of the income from a Trust fund
- Social Security Disability (SSD) (but can be attached by IRS)
- Supplemental Security Income (SSI)
- Income Maintenance (Welfare/Public Assistance)
- HIV/AIDS Services Administration (HASA, formerly DAS)
- Veteran's Administration Benefits
- Unemployment Benefits
- Workers Compensation Benefits (but can be attached by IRS)
- Disability Insurance (except in certain circumstances) (but can be attached
by IRS)
- Teacher Retirement Benefits
- New York State Retirement Benefits
- Pension Benefits
- One hundred percent of the income from Keoghs, Qualified Retirement Plans
under the Internal Revenue Code
- Individual Retirement Accounts (IRAs)
- Alimony and child support payments
FINANCIAL ASSETS:
- Trust funds set up by a third party for judgment debtor
- The assets held in Keoghs, Qualified Retirement Plans under the Internal
Revenue Code and IRAs
- Life insurance benefits payable upon death to a named beneficiary
PERSONAL PROPERTY:
These exemptions apply unless the judgment is for the "purchase price of the particular
exempt property or for services rendered by a domestic, laboring person or mechanic."
(This means that if a merchant sold you a specific item of exempt property listed below,
the merchant is entitled to recover the money owed for the price of such exempt property.)
- All wearing apparel
- Household furniture
- One refrigerator
- One radio
- One television set
- One sewing machine
- Crockery, tableware and cooking utensils
- Family bible, family pictures and school books
- Other books up to $50 in value
- A seat or pew occupied by judgment debtor or family in place of public worship
- Domestic animals with a sixty day food supply up to a value of $450
- Any animal trained to help a person with a permanent disability plus all food for
the animal
- A wedding ring
- A watch up to $35 in value
- "Tools of the Trade" up to $600 in value (items used in a trade or business, e.g.
mechanics tools, professional instruments, furniture and library)
- All medical and dental accessions to the body and equipment necessary to maintain
"major life activities" or to provide mobility for a person with a permanent disability
- Security Deposit for rent, utilities or residence services
REAL PROPERTY:
- Homestead Exemption (If the debtor resides in a home which he or she owns, the
amount of $10,000 of equity is exempt)
What should I do if I am "judgment proof"?
Although your creditors may not collect the money you owe them if you are judgment
proof, they nevertheless can make your life uncomfortable with harassing phone calls
and threatening letters. By explaining to your creditors that you are judgment proof
and providing verification of your income, you may be able to persuade them not to
pursue collection. Below is a sample letter for you to use if you wish to explain
your physical and financial situation to your creditors. The letter should be revised
to include the information appropriate to you. It may be best to send this letter by
certified mail, return receipt requested, so that you have proof that creditors
received your letter.
Sample letter to send to your creditors:
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[Date]
[Your name and address]
[Creditor's name and address]
Re: [Your full name]
Account Number: [Your loan/account number]
Dear Sir or Madam:
I am writing to you regarding the above-referenced account. I am permanently disabled
by [insert AIDS or illness]. [Insert one or more of the following: Social Security Disability,
Supplemental Security Income, Disability Insurance, Income Maintenance, Public Assistance]
[is/are] my sole source[s] of support. As a result, I am currently unable to continue making
any payments on this account. [I am returning my credit card, cut in half, to you.]
At such time, if any, that I am able to return to work, I will contact you to arrange
payment. However, under the circumstances of my condition, both physical and financial,
it would be pointless for you to pursue collection on this matter at this time. I own no
real property and have no other assets or income subject to collection. Therefore, I
respectfully request that you suspend all collection efforts, since they would prove
fruitless.
Information about my medical condition is confidential. You are not authorized to
release this information without my specific prior written consent.
I hereby request that you make no further efforts to contact me by telephone. Any
future communication from you should be sent to me in writing.
Sincerely,
[Your name]
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The impact of this letter on your creditors will vary; some may cease all collection
activities once they learn that you are disabled and have no attachable income or assets.
Other creditors may still continue collection efforts and seek a money judgment although
you have no assets that they can legally seize. Irrespective of the specific results,
sending letters to creditors, collection agencies and attorneys handling your debts is
a positive way of taking charge of the situation and explaining your financial and
physical condition.
Is it illegal for creditors or debt collectors to harass me?
Although there are laws prohibiting collection agencies and creditors from harassing you,
it may not stop some of them. The Fair Debt Collection Practices Act was passed by Congress
to prohibit various methods of debt collection by creditors and collection agencies. Under
the law, debt collectors cannot:
- Use obscene or profane language
- Threaten to harm you, your relatives or your friends
- Threaten to publish or actually publish your name in credit reports as a person who
doesn't pay bills
- Claim to be a law enforcement or other government official
- Send you papers that look like court or government documents
- Repeatedly use the telephone to annoy you
- Contact your employer for any reason other than to verify employment or to arrange a
wage attachment
- Threaten to get your public benefits cut off
- Call you at work if your employer objects
- Falsely state that you've committed a crime
- Threaten to take your property unless they have a court judgement
- Falsely say they are attorneys or use lawyers' stationery
- Claim they will increase the debt when they have no intention of adding on attorney's
fees, service fees, or finance charges
What should I do if creditors or debt collectors do harass me?
You may be able to stop harassing collection efforts simply by informing your creditors
or their collection agents that you know your rights. You can stop a creditor or debt collector
from contacting you by writing a letter to the creditor or collection agency asking them to stop.
Upon receipt of the letter, the creditor or the debt collector may not contact you, except to
inform you that there will be no further contact or to notify you that further specific action
will be taken. Below is a short letter that you could send to creditors or harassing debt collectors.
Sample letter to send to creditors or collection agents in cases
of harassment:
[Date]
[Your name and address]
[Name and address of collection agency
or creditor]
Re: [Your name and account/loan number]
Dear Sir or Madam:
I have received numerous phone calls and several letters from you concerning bills
I haven't paid. Under 15 U.S.C. 1692c, this is my formal notice to you to cease all
further communication with me except for the reasons and in the manner specifically set
forth by the law.
Very truly yours,
[Your name]
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Should I file for bankruptcy?
How do I do it?
After assessing your financial obligations, you may conclude that you will
never be able to pay all of your debts but that you have non-exempt assets and/or
expect to be receiving income which is not exempt from creditors' claims. In these
circumstances, you may need or want to file for bankruptcy. In bankruptcy you are
entitled to keep your exempt property. Your other property, if any, is applied to
pay your debts and the balance of your debts are "discharged," which means they
are wiped out. This form of bankruptcy is known as a Chapter 7 bankruptcy. If you
have regular income, you may also file a Chapter 13 bankruptcy which establishes
a court-ordered payment plan to pay a percentage of your debts from your disposable
income over a fixed period of time. On completion of the payment, a discharge of
the remaining portion of your debts may be obtained. Bankruptcy involves filing
papers that outline your income, expenses and debts, making a court appearance,
and paying a court fee.
There are a few debts that cannot be wiped out in bankruptcy. The major ones are:
- Back alimony and child support
- Back taxes, unless the tax return was filed more than three years before bankruptcy
- Claims arising from death or personal injury while you were driving while intoxicated
- Credit purchases over $1075 for luxuries bought within 60 days of filing
- Debts from willful and malicious acts
- Debts from embezzlement, larceny or breach of fiduciary duty
- Debts from writing a bad check or lying on a credit card or loan application
- Government fines and penalties
- Loans or advances of money of $1,000 or more within 20 days of filing for bankruptcy
- Student loans, unless you can show it is a severe hardship for you to pay. (You should
find out from your student loan lender if you can defer or waive payments based on reasons
of disability, economic hardship or unemployment.)
Bankruptcy enables you to wipe out all of your debts other than those listed above. If
you have "secured" debts where you pledged an item as security for payment of a debt, you
will have to return the item. To keep the pledged item, you will have to pay the balance
(or the property's value, whichever is less). Generally, your income and property exemptions
in bankruptcy will be similar to those used to prevent a judgment creditor from taking your
property, although additional exemptions are available. If you are interested in filing for
a bankruptcy, it is best to consult with an attorney about the exemptions you can claim.
If you file a Chapter 7 bankruptcy, a trustee assigned to your case takes your non-exempt
property and sells it to pay your creditors. The trustee can also recover from your creditors
any payments of over $600 you made within 90 days before you filed. The trustee may also be
able to recover payments or gifts you made to your relatives and friends within a year of
filing. This is to keep you from paying off favorite creditors, friends or relatives,
giving away your personal or real property, or selling it for less than its worth.
Shortly after filing a bankruptcy petition, you will be requested to be present at a
"meeting of creditors" at which the trustee will ask you questions about your income and
property. Your answers will have to be given under oath, as will various documents you
will have to file with your petition or shortly after the filing of the petition. It is
essential that all answers be truthful and complete.
Will my heirs have to pay my bills after I die?
Your heirs will not be personally liable for your debts upon your death. Creditors are
only able to claim against any assets left after your death. If you die without any assets,
there will be nothing to claim against and your heirs will have no liability. During probate
(when any property you left is distributed to your creditors and heirs) your creditors can
make claims against your property. Paying your creditors takes priority over distributing
your property to your heirs. For "small" estates under $10,000, summary probate laws permit
your heirs to claim all your property immediately through a simplified procedure. Nevertheless,
your heirs will be obligated to use any valuable property left behind first to pay your debts
before they can take any such property for their own use.
Practically speaking, most creditors on consumer debts do not pursue their claims after
the debtor's death. Creditors might pursue a debt, however, if they retain a lien on a
particularly valuable item (i.e., the debt is "secured") or if the debt involves a large
amount of money. If your property is worth more than you owe, you can specify in your will
which assets of your estate are to be used to pay the bills.
Referrals
If you need assistance in dealing with creditors or information about filing bankruptcy,
live in New York City, and are a person living with HIV/AIDS, you may contact GMHC's Legal
Services and Advocacy Department from 10:00 a.m. to 6:00 p.m., Monday through Friday, for
free legal advice.
GMHC Legal Department
The Tisch Building 119 West 24 Street
New York, NY 10011
212/367-1040
GMHC also conducts a monthly Debtor Creditor forum. Call the Legal Services and Advocacy
Department at 212/367-1040 for dates and times.
For information concerning various government benefits and entitlement programs, please call
the GMHC Helpline afternoons from 2:00 to 5:30 p.m. at 212/367-1125.
If you need assistance with handling your debts and are not eligible for free legal services,
the following organizations may also be able to assist you.
To work out a payment plan with creditors, contact the not-for-profit organization below:
Budget and Credit Counseling Service
55 Fifth Avenue
New York, NY 10003
212/675-5070
For a referral to an attorney to handle bankruptcy or other matters on a fee-paying basis,
contact LeGal or the Legal Referral Service of the Association of the Bar of the City of New York
referral lines. LeGal is a group of gay and lesbian attorneys in the New York metropolitan area.
Leave your name, phone number and message on the machine and someone will call you back with two
or three referrals. The Legal Referral Service of the Association of the Bar of the City of New
York will refer you to an attorney without regard to sexual orientation.
LeGal (Lesbian and Gay Law
Association of Greater New York)
212/459-4873
Association of the Bar of the
City of New York
212/626-7373
For additional referrals for Credit Counseling or Bankruptcy Attorneys, contact the GMHC Legal
Services and Advocacy Department at 212/367-1327.
© 2003 Gay Men's Health Crisis
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