Yes, debt collectors can take you to court for unpaid debt. But this won’t be their first move. Debt collection agencies will first call you and send notices in the mail to try to collect on unpaid debt. It’s common for debt collectors to make several attempts over a period of many months to collect a debt before they decide to sue you.
Can Debt Collectors Sue You?
Yes. Many people are surprised to learn that debt collectors can sue you for outstanding debt. Often, debt collection agencies will bring a lawsuit for breach of contract. Essentially, they’re saying you didn’t pay a debt you agreed to pay. The contract may come in the form of a loan agreement, credit card agreement, or something else. You usually sign these agreements with the original creditor who owned the account. But if they charge off the debt, it can be sold to a debt collector.
Can You Be Sued After a Charge-Off?
Only debt collectors that own delinquent accounts are allowed to bring a lawsuit. Generally, debt collectors become owners of debt when they buy the rights to collect on an account from an original credit card company or other unsecured creditor.
Many creditors will sell their unpaid accounts to debt collectors for pennies on the dollar once a debt is 90 days past due. One way to know that your debt has been charged off is to look at your credit report. The account will be listed as a charge-off on your report.
A charge-off indicates that a creditor has closed your account because you’ve failed to pay a delinquent debt. This doesn’t mean that you are no longer liable for the debt though. It just means that you now owe a different company. It may also mean that you have more power to negotiate a debt settlement or payment plan with the debt collection agency that now owns your debt.
When Will a Debt Collector Sue?
There’s no surefire way to say when a debt collector will sue to collect on a debt. It depends on the debt collector’s policies, the age of the debt, the amount of the debt, and the type of debt, among other factors. For example, collection lawsuits for credit card debt often happen faster than those for medical bills.
Regardless, legal action isn’t usually the first choice because it can be expensive and time-consuming for debt collection agencies. Collection companies will try other tactics to collect from you, including months of phone calls and written notices.
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How Long Does a Debt Collector Have to Sue You?
While debt collectors and creditors can take you to court for an unpaid debt, they must do so within a certain time frame. This time frame is set out in your state’s statute of limitations. Each state has its own statute of limitations.
The time limit for filing a debt collection lawsuit depends on the state you live in and the type of contract (oral or written). In most states, the statute of limitations for debt collection ranges from 3-10 years.
State law also determines when the clock starts on the limitations period. In most states, the time starts on either
The date you made your last payment,
The date of your first missed payment, or
The most recent date you admitted to owing the debt.
The statute of limitations doesn’t mean that lawsuits filed after the time limit are automatically dismissed. If a debt collector sues you for a debt that’s beyond your state’s limitation period (also called a time-barred debt), it’s your responsibility to respond to the lawsuit and use the statute of limitations as a defense to have the case dismissed.
Even after the statute of limitations expires, you still legally owe the debt. If a debt collector contacts you about an old debt, limit what you say to them so that you don’t accidentally restart the statute of limitations. You can also tell them to stop contacting you.
What Do You Do if You Are Sued by a Collection Agency?
If a debt collector sues you, you’ll receive a complaint and summons that explain why you’re being sued and how long you have to respond. Review these court papers carefully and make sure that everything in the complaint is accurate.
Here are a few things to verify:
That the debt is actually yours
That the amount of money you owe is correct
That the statute of limitations hasn’t run out
That the debt collector or collection agency actually owns the debt
If you haven’t already done so, send a debt validation letter. If the debt collector can’t prove they own the debt, you can use this as a defense to have the case thrown out of court.
It’s also a good idea to review your protections under the Fair Debt Collection Practices Act (FDCPA). This is a federal law that prevents third-party debt collectors from engaging in unfair, harassing, or threatening practices to collect a debt. If a collection agency violated the FDCPA, you can use this as a defense in a debt collection lawsuit. You may also be able to countersue with a claim that the debt collector owes you money due to FDCPA violations.
Don’t Ignore the Lawsuit!
The biggest mistake you can make with a debt collection lawsuit is ignoring it.
After the complaint is filed, you must answer the complaint within a certain time frame. The complaint, summons, or other court documents you received should say how much time you have to file an answer. The amount of time you have to respond varies by state, but it’s usually just a few weeks or up to one month.
You can get legal advice or hire a debt collection attorney, but you can also fight the lawsuit yourself. This may feel intimidating, but there are many resources to help. Start here: You Can Win That Debt Collection Lawsuit .
What Happens if You Ignore a Debt Collection Lawsuit?
Ignoring the lawsuit doesn’t make it go away. Unfortunately, it usually means the creditor or debt collector will win the case by default. If this happens, the court will issue a default judgment against you. This court order allows for more aggressive collection measures including wage garnishment, property seizure, and/or a bank account levy.
If you ignore the lawsuit, you give away all your power. If you answer the lawsuit, you can provide defenses and you may have more bargaining power to settle your credit card debt for less than the full amount.
How Do You Deal With Out of Control Debt?
If you’re being sued for debt or are worried you might be, odds are that you’re struggling financially and may need additional help. The good news is that you have several debt-relief options.
Here are a few options to consider:
Credit counseling is a good starting point for anyone who’s trying to determine the best debt-relief solution for their financial situation. Nonprofit credit counselors offer a free 45–60 minute consultation.
During this time, the credit counselor will help you explore debt-relief options and give you budgeting tips to help you better manage your finances. Watch out for credit counseling scams that charge money for their services. You should never have to pay for a consultation with a credit counseling agency.
Debt settlement can be a great tool if you have extra money to offer your creditors. The debt settlement process allows you to pay less than the amount you owe, but you usually need to do so in one lump sum. Although this may be a good option for people who can afford it, people often enter into debt settlement programs when they should be exploring other, better options.
Settling with a creditor can take a long time, and during the process some creditors may initiate lawsuits to collect the debt. It is important to make sure you are a good candidate for debt settlement before entering into a debt settlement program.
Debt consolidation may be a good option if you have good credit. Debt consolidation allows you to combine multiple debts into one monthly payment. Generally, this process will lower your monthly payment. You can either take out a new line of credit and use this credit to consolidate your debt or you can work with a nonprofit credit counseling agency to construct a debt management plan, which also serves as a form of debt consolidation.
One powerful debt-relief option is bankruptcy. Bankruptcy can immediately stop all debt collection efforts, including a debt collection lawsuit for unpaid debts. This protection comes from the automatic stay. If your bankruptcy is successfully discharged, you won’t be liable for paying your discharged debts, and all collection and judgment actions tied to those debts will cease.
Bankruptcy isn’t right for everyone. If you aren’t sure if it’s the right option for you, you can get a free consultation with a bankruptcy lawyer. If you are concerned about the cost of attorney’s fees, you may be able to use our free online tool to prepare your Chapter 7 case.