When Will a Debt Collector Sue for Unpaid Debt?

When Do Debt Collectors Sue for Nonpayment?

There’s no set timeline for debt collection lawsuits, but the risk increases around six months after missing a payment.

Though it may not feel like it, most creditors would rather collect payment without going to court. That’s why they typically start with letters, emails, and phone calls reminding you about the unpaid debt. If they can’t get a response or payment, they may eventually sell the debt to a collection agency or decide to sue you.

If a debt collector sues, they may try to get a court order for wage garnishment or a bank account levy to force repayment. However, not all debts follow the same timeline. How soon you might be sued depends on your credit agreement, the type of debt, and who owns it.

Check Your Credit Agreement

The terms of your credit agreement often dictate when your account is considered in default and whether the creditor must try mediation or arbitration before suing you. Some agreements set clear deadlines, while others leave it up to the creditor’s discretion.

For debts without a credit agreement—like medical bills—there’s no set waiting period. Creditors or debt collectors could file a lawsuit after just one missed payment, but because lawsuits are expensive, they typically try other collection methods first.

Different banks, credit card companies, and debt collection agencies follow different timelines for deciding when (or if) to sue. Generally, original creditors are less likely to file lawsuits than third-party debt collectors, who may be more aggressive in taking legal action.

Why Debt Collectors May NOT Sue You for Nonpayment

Creditors and debt collectors have to spend time and money to sue you for an unpaid debt. They usually have to hire a lawyer who is licensed in your city or county and pay the court filing fees and costs to serve you with a summons. 

Even if they win the lawsuit and get a judgment against you, the expenses continue as they try to collect it from you. If you don’t have the money to pay the judgment, then the creditor has no way to recover what they spent on the lawsuit.

What Factors Do Debt Collectors Consider Before They Sue You? 

Lawsuits can be expensive and time-consuming, which is why they aren’t usually the first or most frequent solution creditors or debt collectors use. However, some borrowers are more likely to face a lawsuit than others. 

📢 Lawsuits are more common in states with creditor-friendly wage garnishment laws and for individuals with multiple debts in collections.

People with two or more debts in collections are significantly more likely to be sued, and in states with fewer restrictions on wage garnishment, collectors may pursue legal action for smaller debts. This according to a recent study by the Consumer Financial Protection Bureau (CFPB).

Most creditors and debt collectors consider several factors when deciding whether to sue you for unpaid debt, including:

• Where you live

• How much debt you owe

• How old the debt is

• How many debts you have in collections

Where You Live

Your state’s laws have a huge impact on how likely a creditor or debt collector is to sue you. As the CFPB report explains, your state laws determine:

• How much it costs to sue you: This includes filing fees, court costs, and the average hourly rate for lawyers in your area

• Allowable interest rates: Whether your state allows creditors to add ongoing interest to the judgment amount and, if so, how much

• Likelihood of winning: What your state requires the creditor or debt collector to prove in order to win a judgment against you

• Wage garnishment restrictions: The CFPB study found that a creditor’s decision to sue closely correlated to the wage garnishment laws in a borrower’s state. 

Clearly, state law plays a big role in how likely you are to be sued for unpaid debt. Not surprisingly, borrowers in some states are much more likely to be sued than those in other states, according to the CFPB.

How Much Debt You Owe

Lawsuits are expensive, and many creditors and collection agencies won’t bother filing one if the amount of the debt isn’t worth the effort. The median debt collection judgment amount was around $1,600 as of 2016 according to the CFPB. That said, roughly a third of collection judgments were for $1,000 or less. 

The CFPB study also found that where there were fewer state limits on wage garnishments, the threshold amount to file a lawsuit was lower.

The Statute of Limitations (Age of the Debt)

Another important factor debt collectors should (but may not always) keep in mind when deciding when to file a lawsuit is the statute of limitations.

Statutes of limitations for debt are state laws that dictate how long a creditor or debt collector has to bring a debt collection claim in court. The laws not only vary by state, but they also vary by the type of debt contract. The statute of limitations for credit card debt often ranges from 3–6 years, but in some states it may be longer.

Unfortunately, some debt collectors will try to bring lawsuits on time-barred debt (old debt past the statute of limitations). The court will not automatically dismiss the case. You must respond to the lawsuit and raise this defense to get the case dismissed. Read on to learn more.

‼️ If you're worried about responding on your own, but you can't afford a lawyer, you can draft an answer letter using our partner Solo. They've helped over 280,000 people respond to debt lawsuits, and they have a 100% money-back guarantee.

How Many Debts You Have in Collections

The CFPB study suggests that most creditors and debt collectors consider roughly the same factors when deciding whether a borrower is worth suing. That’s bad news for consumers who have more than one debt in collections. Why? If one creditor decides you’re worth suing, other creditors probably will, too. 

About 1 in 7 (15%) consumers who’d been contacted about a debt in the previous year reported being sued. That’s according to the Consumer Federal Protection Bureau’s (CFPB) 2017 survey Consumer Experiences With Debt Collection. 

The same survey found that individuals who had 2–4 debts in collections were more than twice as likely to report being sued than those with one debt. And for people who had five or more debts in collections, the likelihood of a debt collection lawsuit doubled again.

Table credit: CFPB’s Consumer Experiences With Debt Collection survey

What Should You Do if You’re Sued for a Debt?

Being served with court papers can be stressful, but if you get sued for a debt, take a deep breath and prepare to fight back. 

While this will take some effort on your part, if you fail to answer the lawsuit, the judge will likely award a court order called a default judgment to the debt collector. If this happens, the debt collector can access more tools to collect the debt, including a bank account levy and wage garnishment.

First and Foremost: Respond to the Lawsuit

You may be thinking that winning is a long shot, but most debt collectors’ main strategy is to hope you just don’t show up to court. 

Prove them wrong by responding to the court summons and complaint. Though it may feel intimidating, you can answer (respond to) a court summons and deal with a debt collection lawsuit without an attorney. 

If you want legal advice or help in responding to the lawsuit, act quickly. If you can’t afford a lawyer, see if you qualify for free legal help through a legal aid or volunteer attorney organization in your area.

To learn more about how to successfully deal with a debt collection lawsuit, read our article on 3 Steps To Take if a Debt Collector Sues You.

‼️ You can also draft an answer letter for a small fee using our partner Solo. They've helped 234,000 people respond to debt lawsuits, and they have a 100% money-back guarantee.

Can You Negotiate With a Debt Collector To Avoid a Lawsuit?

Probably. Debt collectors are often willing to negotiate with consumers to avoid the legal costs of a lawsuit or not getting paid at all should you choose to file bankruptcy. You can try to negotiate a debt settlement or otherwise come up with a plan to repay the debt.

If you haven’t received a court summons, communicate with your debt collector and try to settle the debt before they take legal action. If you come to an agreement that keeps you out of the courtroom, you’ll avoid attorney fees, court costs, and time spent in court.

If you have received a court summons, respond to the summons and contact the debt collector if you want to negotiate a settlement. If you don’t answer the summons, the debt collector can move forward with the court case even if you’re in negotiations to settle or otherwise repay the debt.

What Is Debt Settlement?

Debt settlement is a debt-relief option where you negotiate a partial payment on a debt and the rest is forgiven. In exchange for this forgiveness, you usually have to make one lump-sum payment. In some cases, you may be able to negotiate a payment plan, but this is less common because there’s a risk you could default on the payments. If you default, you end up right back where you started.

Debt settlement can bring serious relief, but it also comes with consequences you should be aware of. First, it’s usually listed on your credit report as “debt settled for less than the full amount owed.” This will likely negatively affect your credit score.

You may also have to pay income tax on the debt that was forgiven.

What if You Can’t Afford To Pay the Debt?

Many people avoid debt collectors or choose not to respond to debt collection lawsuits because they can’t afford to pay the debt. After all, if you could’ve paid it off, you probably would have done so already and avoided the hassle and stress of being sent to collections.

But avoiding the debt won’t make it go away. If you’re struggling to make ends meet, it might be time to get some support.

Try Credit Counseling

Credit counseling is a great place to start for many people. A nonprofit credit counselor can look at your situation and help you understand your debt relief options. 

They may suggest debt consolidation, a debt management plan, or bankruptcy. The good news is that the first session is usually free!

Credit counselors can help with credit card debt, medical bills, and other types of consumer credit. There are also certified credit counselors who can help you make a plan to deal with your student loans.

There are also a lot of resources online. The Consumer Financial Protection Bureau helps consumers make informed financial decisions and build financial skills. Upsolve’s Learning Center has articles on everything from budgeting to filing bankruptcy.

Bankruptcy Can Stop the Lawsuit and Clear (Many) Debts

If you’ve tried everything to address your debt and you don’t see a light at the end of the tunnel, it may be time to consider filing bankruptcy. Bankruptcy gives tens of thousands of people a financial fresh start each year. 

Bankruptcy can erase most unsecured debts, including medical debt, credit card bills, and other past-due bills. You can also apply to erase federal student loans, though this requires an extra step called an adversary proceeding. Guidelines around student loan bankruptcy have changed recently, and the success rate of filing for bankruptcy on these loans is unknown, but it’s still worth trying if you’re filing bankruptcy anyway.

Like everything, bankruptcy has pros and cons. One major benefit is that you get immediate protection from collection activities thanks to the automatic stay. This includes lawsuits for credit card and other consumer debt.

Upsolve helps people file Chapter 7 for free without a lawyer. But if you want legal advice, most bankruptcy lawyers offer free consultations. 

Dealing With Debt Collectors? Know Your Rights

If you’re feeling daunted by debt collectors, it can help to know your rights. The major federal law that protects consumers against debt collector harassment and unfair collection activities is called the Fair Debt Collection Practices Act (FDCPA). 

This law is enforced by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). If a debt collector violates state laws, you can also file a complaint with your state attorney general.

Under the FDCPA, debt collectors are legally required to provide a validation notice for any debts they try to collect. This written notice must be sent prior to or within five days of their first contact with you. 

Among other things, the validation notice must tell you the name of the creditor and give details of the debt. It also has to include information about your right to dispute the debt and how to do so. If you haven’t received a debt validation letter, you can request one. If you don’t get one, this is a red flag that this may be a scam.

If a debt collector fails to provide a validation notice, makes harassing phone calls, or otherwise violates the FDCPA, you can report them to the CFPB and/or sue for damages.