When Will a Debt Collector Sue?

This article will explain when a debt collector is likely to sue you for unpaid debts, including credit card debts or medical bills. Once you stop making timely payments on a debt, your creditor will attempt to collect it by regularly sending you notices of nonpayment. This may go on for several weeks before these collection attempts intensify. Third-party collection agencies may become involved in the collection process. The debt may even be sold to a third party. Eventually, some debt collectors in the chain will likely file a lawsuit for the debt’s repayment. 

Debt Collection Time Frame

It’s difficult to predict when a debt collector may sue you. Each bank, credit card company, collection agency, and attorney involved in the collection industry has a different time frame and procedure for debt collection, and ultimately, filing a lawsuit. 

Debt collectors take several factors into account when deciding when to file a lawsuit. The statute of limitations is probably the most important factor. This state law sets the timeframe for when claims may be brought in courts of law. This includes any claim by a creditor that decides to sue you for a debt. Statutes of limitations may differ based on the type of debt. The timeframes in these statutes can range from two to 10 years, depending on your state. 

If a lawsuit is filed after the time stated in your state's statute, the judge will dismiss it as a time-barred debt. The plaintiff will also be prevented from undertaking any further debt collection. It is important to be familiar with the statute of limitations in your state. This is because it is fairly common to receive a phone call from a collection agency trying to collect an old debt. 

Some debt collectors resort to the legal system more quickly than others. While some creditors may try to collect a debt after only a single missed payment, most file lawsuits only as a last resort. Suing someone is expensive and time-consuming, so lenders and collection agencies will also consider the amount of the debt you owe when deciding whether to sue you. 

Most lenders prefer to give consumers every opportunity to resolve or “cure” any delinquency of monthly payments before going to court. As a result, lenders will first mail written notices to try to collect the original debt. If this fails, they may assign the debt to a third-party debt collection agency or even sell it to a debt buyer. If this happens, the process will typically restart with notices by mail.

You vs. Your Debt Collectors: Your Rights

In an effort to protect consumers, the Consumer Financial Protection Bureau enacted the Fair Debt Collection Practices Act (FDCPA), which is enforced by the Federal Trade Commission (FTC). Congress has made valiant efforts to protect consumers from unscrupulous debt collectors by passing acts like the FDCPA, the Telephone Consumer Protection Act, and the Fair Credit Reporting Act. As a result, debt collectors may not use the following tactics to collect debts:

• Harassment, intimidation, or profane language

• Threats to publicize the information about the debt

• Calling before 8 a.m. or after 9 p.m.

• Contacting you at work after you request that they only contact you at home

Any debt collector who contacts you claiming that you owe a debt is required by law to tell you certain information about the debt, including:

• The name of the creditor

• The amount  you owe

• That you may dispute the debt

• That you may request the name and address of the original creditor if it’s different from the current creditor

If the debt collector doesn’t provide this information when it first contacts you, it is required to send you a written notice with the information within five days of the initial contact. 

If you tell a debt collector in writing to stop contacting you, the debt collector is prohibited from further contact except to communicate that there will be no further contact or to notify you that, as a debt collector, it may take certain action as allowed by the law. It is crucial to note that telling a debt collector to stop contacting you does not prevent them from pursuing other methods of debt collection. These include filing a lawsuit against you or reporting negative information to a credit bureau.

The FDCPA applies to the collection of mortgages, credit card debt, medical debts, and other debts mainly for personal, family, or household purposes. The FDCPA does not cover business debts. It also does not generally cover collection by the original creditor that first extended credit on your behalf. Under the FDCPA, debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business. Debts may be sold by an original lender to third-party debt buyers, who buy past-due debts from creditors or other businesses and then try to collect them. 

Debt collectors may not use any deception when communicating with you about a debt that they allege that you owe them. They must respond truthfully to any questions that you ask them about the debt. They are also legally required to verify or validate the debt upon your request. You also have the right to dispute whether you owe a debt. It is not uncommon to receive a phone call from a debt collector even though you have already paid the debt. 

If you dispute all or part of a debt in writing within 30 days of receiving the required information from the debt collector, they cannot call or contact you to collect the debt or the disputed portion until it has verified the debt in writing. Once you’ve received the requested information or the response to your dispute, it’s important to review your records of the debt to determine if these details match the information provided by the debt collector.

If a debt collector violates the FDCPA, it may have to pay you damages for physical and emotional distress, additional statutory damages of $1,000, and your attorney fees. There are several ways to deal with debt collection companies, especially those that harass you.

What To Do if You’re Sued for a Debt

Remember, if you’re sued for a debt, you shouldn’t panic. 

You will be served with a complaint and summons. Do not ignore these legal documents! Read them carefully and note any dates they mention. There will be a deadline for answering the complaint. Do NOT miss this important deadline! It may result in the court awarding the debt collector a default judgment, which means the debt collector wins the case and you are now legally responsible for repaying that debt, even if it was attributed to you by mistake.

Debt collectors may deal with thousands of delinquent accounts. Because of this excessive workload, it is not uncommon for debt collectors to make oversights or errors in the process of trying to collect a debt. It’s important to review the complaint to ensure that it is factually accurate. Does the creditor name, account number, and unpaid balance of the debt in the lawsuit match similar information on your credit report?

If the names or dollar amounts are incorrect, you can dispute the debt and challenge the lawsuit. Of course, this means that you must file an answer. You cannot simply ignore it. You must patiently wait for a court date to make your case. There may also be other legal reasons that a creditor or collection agency can’t sue you, such as the statute of limitations expiring. 

If you fail to answer the lawsuit, the collector who filed the case will likely be awarded a default judgment by the court. If this happens, the debt collector as a judgment creditor will have more tools to collect the debt. These tools include a bank account levy and wage garnishment. You might benefit from retaining a lawyer to help you defend this lawsuit. On your own, it might be difficult to ensure that you raise all legitimate, applicable defenses.

Negotiating With a Debt Collector

Debt collectors are almost always willing to negotiate with debtors to avoid the high legal costs of bringing a lawsuit in court. They would rather settle the debt and receive a partial recovery of the balance than nothing at all. 

Before hiring an attorney, communicate with your debt collector and try to settle the debt outside of court. This way, you avoid attorney fees, filing fees, other court costs, and time spent in court.  Legal expenses add up quickly. A debt collector will try to recoup these extra costs from you, and if they win the lawsuit, they will. Credit counseling can also be helpful in this situation. The Consumer Financial Protection Bureau offers tools and resources to help consumers make informed financial decisions and build financial skills.

You can still negotiate a debt settlement after the debt collector files a lawsuit. A debt collection lawsuit can potentially be resolved with debt settlement. After a lawsuit is filed, the court may require both parties to attempt to settle the case without a trial. It is common for lawsuits to settle before going to trial, especially if there isn’t a large amount of money in dispute.

A debt settlement usually goes one of two ways. The first option is for the entire debt to be paid over a period of time as part of a payment plan. The creditor may not offer this option because it gives you another opportunity to default. The second option is to negotiate a partial payment made in one lump sum. The debt collector may agree to settle the debt only if the negotiated amount is paid in a lump-sum payment.

Be aware that a settled debt will appear on your credit history as “debt settled for less than the full amount owed.” This is an event that will negatively affect your credit score. A debt settlement also raises potential tax consequences because the IRS treats forgiveness of any debt over a certain value as taxable income. This means that you might have to pay taxes on the amount of debt that was forgiven.

You’ll need to review your finances to see if you can settle your debt and truly repay it. You must be realistic about what you can offer and what terms you can meet. This is true whether the settlement is a discounted lump-sum payment or a payment plan over time. 

Considering Bankruptcy

If you know for certain that you’ll never be able to pay the debt, consider getting some legal advice about filing bankruptcy. Most consumers file Chapter 7 or Chapter 13 bankruptcy. Most bankruptcy attorneys offer free consultations. Bankruptcy is a debt relief tool that helps people eliminate debts and, in most cases, get a fresh start. 

If you are sued for a past-due debt, remember that options such as bankruptcy and debt settlement are available. But never think that ignoring the lawsuit will solve the problem. If you don't do anything, the debt collector will likely obtain a court judgment and then garnish your wages or levy your bank account.

If a debt collector is awarded a default judgment, as a judgment creditor, it will receive broad collection powers and substantial time to collect the full amount of the judgment. Judgments remain effective for more than a few years, depending on the law in your state. Typically, judgments may be renewed if unsatisfied. For example, in Colorado, a judgment in county court lasts for six years while a judgment in district court lasts for 20 years. Either may be renewed at the end of that period, but eventually, a judgment becomes unenforceable.

Let’s Summarize…

There is no reason to despair if you are sued by a debt collector. You have effective options under federal law when you have unpaid debts. While there is no way to know for sure whether or when any debt collector will sue you, you’ll have access to helpful tools even if you are sued.

As a consumer, you have valuable rights when dealing with debt collectors. There are many resources available through government agencies designed especially to help you. 

If you are sued, seek help. Make sure you are prepared to deal with the lawsuit. Do not ignore it. Even after a lawsuit has been filed, you can negotiate a settlement of the debt. If this becomes difficult, you can always consider filing bankruptcy as an option to manage your debt and find relief. Upsolve has a free filing tool that helps qualified people file Chapter 7 bankruptcy.