Can a Collection Agency Sue You to Collect?
Debt Collection Lawsuits
- Whichever company owns your debt maintains responsibility for taking legal action to collect that debt should you fail to make payment arrangements. When your creditor sells your balance to a debt collector, the collector -- not the original creditor -- officially owns the debt. This gives the collection agency the right to file a lawsuit against you.
Not all creditors sell debts to collection agencies outright. Some merely transfer accounts to collectors in exchange for a percentage of the collection proceeds. In this case, a creditor can either authorize the collection agency to file suit against you or file the lawsuit itself.
- A collection agency must sue you within a certain time frame for its suit to be legally valid. The time frame begins on the date your debt was first classified as 180 days overdue and ends when the statute of limitations on collection lawsuits expires in your state. Each state employs different collection statutes depending upon the type of debt a consumer owes.
However, these legal restrictions do not prevent some debt collectors from filing lawsuits in an effort to collect old debts, even if the statute of limitations has expired. The debtor must notify the court of the debt's age and use the expired statute as a legal defense to have the lawsuit dismissed.
- Just because a collector can sue you, that does not mean that it will. Debt collectors use the threat of legal action to frighten consumers into paying off delinquent debts -- even if the company has little or no intention of suing. While each company's policies differ regarding filing collection suits, your odds of facing a lawsuit from a collection agency increase the more you owe.
If the debt you owe is particularly old and the statute of limitations has already passed, threatening to sue you for the debt is prohibited by the Fair Debt Collection Practices Act.
Collecting Via Lawsuits
- A lawsuit may give a collection agency a greater range of collection options, such as liens and garnishment rights, but it does not guarantee that the company will be able to recover the debt. Individuals who are insolvent and have no assets and those whose assets are protected under state and federal law, such as elderly consumers whose income comes solely from Social Security payments, are protected from garnishment and liens. Thus, just because a collection agency can legally sue you, that does not mean that it can collect the debt.